China FDI on the rise as investors seek place to park money
China’s Ministry of Commerce said Wednesday that foreign direct investment into the country is rising drastically this year, raising concerns over inflation because large parts of the FDI are unaccounted for.
FDI, through the first half of 2008, grew 45.5 percent over the same period in 2007, to $52 billion, the China Daily reported. The problem, according to the ministry, is that foreign investment in fixed assets and real estate actually dropped through the six months of this year. That means “the destination of a large part of the money inflow cannot be explained,” Gene Ma, macroeconomic analyst at Beijing-based economic research firm China Economic Business Monitor, told the state-owned newspaper.
The prevailing theory is that the yuan’s strength against the dollar and high interest rates in China are making the country an attractive place to park money, especially given the dour state of the U.S. economy.
Beijing is actively trying to control the flow of this “hot money,” as it fears inflation may rise.
“The State Administration of Foreign Exchange issued a new rule last week, which asks traders to report advance payments for exports and deferred payments for imports, because both of these channels can be used to bring in ‘hot money,’ ” the report said.
Meanwhile, tighter credit control in China was making it harder for small- and medium-sized companies to get financing for expansion as China sees the first signs of an economic slowdown. According to another report in the newspaper, analysts awaiting fiscal results from the first half of 2008 are expecting to see modest growth due to the rising yuan and higher labor costs in China’s traditional manufacturing regions — the Yangtze and Pearl river deltas.
Trade and export volumes are still expected to grow sizably in real terms, but the growth may slide for the first time since China was admitted to the WTO in 2001.