The continued flow of foreign investment into overheating industries will not block the government's effort to control these areas, but offer a lift, analysts say.

Foreign investors in steel, cement, aluminium and real estate have not been dissuaded since the government announced these industries were overheated and acted to curb money flow into them.

In the past few months, Morgan Stanley has entered into co-operation agreements or established joint ventures with various mainland property developers, including Goldfield Industries, Shanghai Fudi, Yongye and Sunco Group.

ING, one of Europe's largest financial institutions, has gone into partnership with Beijing Capital Land to establish an investment fund targetting mainland properties.

BlueScope Steel Limited, Australia's leading steel company, has announced the construction of a major new flat steel metallic coating and painting facility in Suzhou Industrial Park in China's Jiangsu Province.

The capital cost will be approximately A$280 million (US$196 million), and the facility is expected to be mostly completed by 2006.

Central government efforts to cool off these sectors have created a vacuum for large chunks of investment funds from abroad.

"The government's steps to cool the overheated industries are mostly financial ones, including raising bank reserve requirements and curbing loans to these sectors," said Zhao Jinping, an expert from the Research and Development Centre of the State Council.

"These measures, generating a big impact on domestic companies, have little effect on foreign investors," Zhao said.

He said the foreign investors would take opportunities to enter overheated industries, which are often equivalent to fat profits.

He said the government should have an eye on the trend. But he said that the foreign investment would not pose a threat to government moves to curb overheated industries, which are targetting overlapping investment in the low-end of the industries.

Jin Bosheng, an analyst from the Chinese Academy of International Trade and Economic Co-operation, echoed Zhao, saying that foreign investment would help upgrade and optimize the structure of overheated industries.

"The government made it clear that they would only curb investment in overlapping construction, or where there was high energy consumption or great pollution. They did not ban investment in those industries," Jin said.

He said the government still welcomed foreign investors and that foreign investment in these sectors was at a reasonable level and was not part of the overheated problem.

The government is also keen to continue attracting foreign investment as it has become an extremely valuable way of gaining technical and management expertise that can be used to improve China's domestic firms.

For example, steel projects invested by foreign investment boast technology 10 years in advance of China's.

The Ministry of Commerce has taken a series of macro-control measures, including more stringent examination and approval of foreign-invested projects in overheating sectors, straightening out development zones and curbing blind investment in commercial areas, according to Yu Guangzhou, vice-minister of commerce.

But Yu said the ministry will give the green light to those at a high level.

He said foreign investment in China's high-tech sectors increased significantly this year.

Contractual foreign investment in specific equipment, general equipment, computer and communications equipment, the three major manufacturing sectors in high-tech industry, increased by 195, 75 and 73 per cent respectively in the first half of the year.

(China Daily August 2, 2004)