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Last Updated: Monday, 17 April 2006, 10:25 GMT 11:25 UK
China backs overseas investment
Chinese construction worker at building project in Beijing
The authorities are trying to restrict investment in some sectors
Foreign firms will still be welcome to invest in China, despite fears inflows are swelling the country's currency reserves, a senior official has said.

Hu Jingyan, of the Commerce Ministry's foreign investment office, said China "will not change" the policy of encouraging foreign investment.

It came as the OECD said increased transparency would bring more inflows.

China drew $60.3bn(34.3bn) in FDI in 2005 and $60.6bn in 2004. FDI rose 6.4% in the first quarter of 2006 to $14bn.

'Not saturated'

However, some analysts say it has created an excessive rise in currency reserves.

Reserves grew $56.2bn in the first quarter to $875.1bn, but Mr Hu claimed the foreign exchange reserves, per head of China's 1.3 billion population, were still relatively low.

"We can't say that foreign investment in China has already become saturated," he said on Monday.

China attracts a lot of FDI, more than any other developing country, but less FDI per head than 29 out of the 30 OECD countries
Ken Davies, OECD

He also said China was working on its proposed anti-monopoly law and would issue it very soon.

His remarks came after the Organisation for Economic Co-operation and Development (OECD) said China could attract more foreign direct investment (FDI) if it set up transparent merger and acquisition procedures.

The organisation also said fully opening its capital markets would also attract more investment to China, which is not a member of the Paris-based club.

'More investment'

The OECD also says some remaining curbs on foreign investors should also be lifted.

"There is a possibility of even more investment in China," said Ken Davies, senior economist at the OECD, as he launched its Investment Policy Review - China.

"China attracts a lot of FDI, more than any other developing country, but less FDI per head than 29 out of the 30 OECD countries," Mr Davies added.

Mergers and acquisitions form a relatively small part of FDI flows, and China would benefit from the faster growth and greater economic efficiency that they generates, the OECD has argued.

Earlier this month the Asian Development Bank said that investment would remain the main driver of the Chinese economy in 2006 and 2007.

The Chinese government has been attempting to rein in excess investment in some sectors, such as the construction, steel and cement industries.

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