Foreign direct investment (FDI) increased nearly 12 percent year-on-year in the first quarter to reach US$15.9 billion, the Ministry of Commerce said yesterday.

 

It marked an upward trend after continuous monthly drops last year, and allays fears that the new corporate income tax - which unifies rates for domestic and foreign firms and takes effect next year - would dampen the enthusiasm of foreign investors in China.

 

Heated discussion on lifting the corporate tax paid by foreign corporations to 25 percent from the current average of 15 percent and lowering the rate from around 35 percent to 25 percent for domestic enterprises led to declines in FDI, especially in the latter half of last year.

 

Experts believe overseas companies were waiting until the picture was clearer which it is now after the law was passed last month.

 

"Nobody can resist the temptation of the China market, and the momentum of FDI growth will continue," Gao Huiqing, senior economist at the State Information Center, told China Daily.

 

Meanwhile, foreign exchange reserves reached US$1.202 trillion at the end of March, up 37.36 percent year on year, the country's central bank said yesterday.

 

The reserves increased by US$135.7 billion in the first quarter, compared with an increase of US$250 billion for the whole of last year, the People's Bank of China said.

 

The rising trade surplus is a contributing factor but other elements, such as hot money, or speculative capital inflows, may be behind the expanding reserves, said Li Jian, a researcher with the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce.

 

The trade surplus for the first quarter was US$46.44 billion, nearly double the figure for the same period last year, even though it declined 38 percent year-on-year to US$6.87 billion in March.

 

Jun Ma, an economist with Deutsche Bank in Hong Kong, said the rising reserves will continue to exert pressure on the yuan to appreciate.

 

The central bank also revealed yesterday that growth in M2 - the broad measure of money supply which includes cash and all deposits - edged down to 17.3 percent at the end of March from 17.8 percent in February.

 

The M2 growth marked a significant decrease compared with the peak of 19.2 percent in January, showing the central bank's measures, such as raising the required reserve ratio for banks, are working.

 

(China Daily April 13, 2007)