Contracted foreign investment, an indicator of future trends, rose 59.6 per cent year-on-year in January to March to US$22.98 billion, the ministry said.

The strong growth has continued from last year and is expected to last for quite some time, said analysts.

Despite dramatic cuts in the total amount of global cross-border investment, foreign capital inflow in China started to rise rapidly since last year.

China surpassed the United States as the world's largest foreign investment receiver last year, with an inflow of US$52.7 billion.

Low manufacturing cost is a major attraction for foreign investors. Harsher competition due to contracting international demand and the depressed global economy last year sharpened China's advantage, said Long Guoqiang, a researcher at the Development Research Center under the State Council.

China's entry to the World Trade Organization (WTO) and the resulting improvements in the transparency and stability of Chinese laws, rules and policies have played a pivotal role in boosting foreign investors' confidence in the market, he said.

Continuous rapid economic growth and the country's bright prospects create abundant business opportunities for foreign companies.

But commerce ministry officials in charge of foreign investments said it was hard to predict how long the honeymoon between China and foreign investors was going to last.

Neighboring countries are intensifying their efforts to attract foreign investments and sharpening their edges in terms of policies, labor cost and manufacture capability, they said.

China WTO Report 2003, an annual publication compiled by China Society for WTO Studies, urged the Chinese Government to improve its laws, rules and policies, especially the industry directory for foreign direct investments, to iron out problems for foreign investments.

It said the government should also pay much attention to the co-ordination between investment and trade policies, reform and adjust its means of managing foreign investments, diversify foreign entry modes and encourage foreign participation in restructuring State enterprises as well as the development of China's middle and west regions.

China has issued new temporary rules for mergers and acquisitions (M&As) between foreign and Chinese companies in the latest step to increase inflows of foreign investment.

A number of conditions were also set with the aim of protecting domestic industry from foreign players.

The rules, effective from April 12, were "aimed at promoting and regulating foreign investment in China and boosting the level of foreign capital utilization,'' said the Ministry of Commerce.

"Mergers and acquisitions by foreign capital have become the main form of attracting overseas investment globally,'' it said.

The rules were issued as China opens its economy to foreigners wider following its entry into the WTO in late 2001.

The rules provide a formal framework that might make it easier for foreign firms to invest in China's corporate sector.

(China Daily April 15, 2003)