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Foreign investment fever in China may be calming

Foreign investment fever in China might have subsided, as the figure for foreign direct investment (FDI) there has posted the first-ever decrease, according to a report issued yesterday.

FDI in China totaled US$37.99 billion in the first eight months of this year, a decline of 3.02 percent year on year and the first such fall since 1999.

These figures are an indication that suggests foreign investment fever in China might have calmed, according to the report by Chung-hua Institution for Economic Research (中經院) researcher Ku Ying-hua (顧瑩華), which appeared in an electronic newspaper run by the Investment Commission under the Ministry of Economic Affairs.

During the same period, Taiwan investment in China also dwindled by 18.3 percent to US$3.593 billion in value for 853 investment plans -- an annual drop of 42 percent, the report said.

Overheated economy

Ku ascribed Taiwan's sliding investment in China to the effects of China's efforts to cool down its overheated economy and to a fading investment pattern, given that almost all of Taiwan's businesses suitable for relocation have already moved out of Taiwan.

The foreign investment rush in China over the past few years was mainly a result of China's much-anticipated entry into the World Trade Organization (WTO), Ku said.

Ku pointed out that the fever was set to be on the wane after China joined the WTO at the end of 2001.

Rising labor costs

Before 2000, foreign companies had focused their investment on export-oriented processing businesses, but such investment has become increasingly unprofitable due to rising labor costs in China and its entry into the WTO, which Ku pointed out allows foreign traders to directly purchase in China at lower prices thanks to the reduced customs duties.

Last week, a report by the UN Conference on Trade and Development (UNCTAD) said China was the number one investment destination in Asia for the fourth year running, since the country attracted US$60.6 billion of FDI in 2004.

Hong Kong was ranked second, also for the fourth year running, but saw FDI jump from US$13.6 billion in 2003 to US$34 billion in 2004, the biggest jump in the league table, according to UNCTAD's World Investment Report 2005.

Other top countries

Singapore held third place for the second year running with US$16.1 billion worth of FDI, compared to US$9.3 billion a year earlier.

The other countries in the top 10 were Japan (US$7.8 billion), South Korea (US$7.7 billion), India (US$5.3 billion), Malaysia (US$4.6 billion), Taiwan (US$1.9 billion), Vietnam (US$1.6 billion) and Thailand (US$1.1 billion).
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