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Plunge in investment in China reflects new caution

Though China will broaden macroeconomic controls to check an overheated economy, unless it revalues its currency upward no amount of controls will be effective, a senior official at the Council for Economic Planning and Development said.

The number of approved investments for China fell significantly in the first quarter, and this represented growing concerns among Taiwanese businesses over the worsening economic environment in China, Council Vice Chairman Thomas Yeh (葉明峰) said in an interview published in the Chinese-language Liberty Times yesterday.

According to the Ministry of Economic Affairs, 289 China-bound investment applications were approved in the first quarter, a drop of 47.83 percent from a year earlier. The total value of investments also dropped by 6.57 percent to US$1.21 billion.

Yeh saw this as a cooling of the China-investment fever that has gripped Taiwan. He attributed it to the macroeconomic controls that are necessary because of China's unbalanced economy, and also to China's failure to resolve problems over water and electricity supplies, as well as the unpredictability of the government.

All these factors have caused Taiwanese businesspeople to be more cautious when investing in China, he added.

This year, China has seen GDP growth of 9.5 percent. Analysts are expecting Beijing to impose more macroeconomic controls in response.

Yeh said that China has already been using such controls for a year now, but with little effect. He said this was largely because the value of the yuan has remained unchanged.

While other currencies have risen in response to the weakening US dollar, the yuan, which has been pegged to the US dollar at around 8.3 since 1995, remains stable. China has gained a significant advantage in its exports because of this, and has also accrued over US$600 billion in foreign currency reserves.

"The fact that the Chinese government won't let the yuan rise in value is unthinkable, it is immoral," Yeh said.

He added that China was using the fixed exchange rate and a surging trade surplus to earn foreign exchange.

Because this was impacting negatively on international markets, he said, it was hardly surprising that the US Congress warned China that it would levy anti-dumping taxes on Chinese goods if Beijing did not allow the yuan to appreciate.

Yeh suggested that China's behavior had not only led to international criticism, but was also hampering its efforts to bring its economy under control.
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