In July China's foreign direct investment (FDI) swelled nearly 46 percent year-on-year, indicating strong confidence by foreign investors in the Chinese economy despite the government's credit-tightening moves.

The nation registered actual FDI of US$38.4 billion in the first seven months, up 15.1 percent from the same period last year, according to the Ministry of Commerce.

Contracted direct investment, an indicator of future trends, climbed 39.7 percent, to US$82.7 billion, in the period.

The ministry said China approved 25,217 new foreign-invested ventures in the seven months, up 13.4 percent.

The ministry did not provide specific data for July alone, but calculations using official information indicate that actual FDI in July was US$4.5 billion, up nearly 46 percent from a year earlier.

That puts the growth rate of actual FDI at a record high for the year, well above the rises of 14.2 percent in June and 15.5 percent in May.

Analysts attributed the high rate to the small base in July last year, which was affected by the aftermath of the SARS outbreak.

FDI slipped nearly 19 percent year-on-year last July, to US$3.1 billion. From that month, the FDI growth rate declined for five consecutive months.

But the higher growth rate is also partially the result of the increasing confidence of foreign investors, who believe the country's economy will remain secure and land softly, said Wang Xiaoguang, of the National Development and Reform Commission's Academy of Macroeconomic Research.

Contracted foreign investment has stayed on a fast track despite the fluctuations in actual FDI.

For example, contracted foreign investment in 2003 was US$115 billion, soaring 39 percent from a year earlier, compared with 1.4-percent growth in actual FDI last year.

"They are just waiting for the right timing to move into China," Wang said. The debate over whether China's economy would have a hard or soft landing convinced many investors to hold on to their money for a while.

China has moved to prevent overheating in selected industries such as real estate, steel, aluminum and cement production.

Recent economic figures are bolstering confidence in the government's ability to engineer a soft landing for the world's fastest-growing major economy, according to Wang.

Sun Xiaohua, of the Chinese Academy of International Trade and Economic Cooperation, said many foreign investors are going forward with their investments in expectation of further moves to open the Chinese market.

More capital will flow into fields such as banking, tourism, commerce, hospitals and education as China meets the deadlines for a number of its WTO agreements by December 11 this year.

Sun said that the government's decision to encourage foreign investment in restructuring state-owned enterprises will also provide more opportunities for FDI. Multinationals' mergers and acquisitions will provide new impetus to FDI this year.

Meanwhile, foreign companies are setting up more research and development centers and service departments. For many foreign investors, the Chinese market has grown into a major market as well as a manufacturing base, according to Sun.

Foreign investors had set up over 600 R&D centers in China as of June this year, with a total investment of US$4 billion.

Government forecasts call for actual FDI to match or exceed the US$53.5 billion of 2003.

(China Daily August 20, 2004)