Foreign companies are planning to dramatically increase their China investments, even their investments into the world's largest developing economy declined this year, according to official data released Wednesday.
Planned foreign direct investment, which gives an indication of future investment flows, rose 24 percent to $27.6 billion in the first seven months compared with the same period last year, according to the International Business Daily, published by the Ministry of Foreign Trade.
"Planned foreign investment has picked up abruptly as foreign investors expect China to liberalize its service sector after entry into the World Trade Organization," said Robert Subbaraman, an economist with Lehman Brothers in Tokyo.
In negotiations with the United States and the European Union over the past year, China has agreed once it becomes a WTO member to substantially lift restrictions on foreign investments in industries ranging from banking and insurance to telecoms and the Internet.
New Jersey-based insurer Chubb Corp., which plans to start selling non-life insurance to foreign companies in Shanghai in October, is one of the likely beneficiaries of China's entry into the WTO.
The company, the 13th largest property insurer in the US, expects its potential market to increase six times once WTO rules allows it to sell to Chinese enterprises as well.
Foreign enterprises are also becoming keener on China as economic growth finally appears to be accelerating, after posting continuously slowing growth since 1992.
In the first half of this year, China's gross domestic product grew by 8.2 percent year-on-year, a marked improvement from 1999's 7.1 percent growth for the full year, which was the slowest in nearly a decade.
The rise in planned investments contrasts with actual investments made by foreign companies, which declined 7.4 percent in the first seven months from one year earlier to $19.9 billion.
This is because investment projects take a long time to implement - equipment must be imported, business approvals obtained - and these figures often reflect previous bad news.
"Foreign direct investment has a lot of inertia," said Subbaraman. "It doesn't respond to changes as quickly as stock market investments."
In the case of China, the decline in actual investments in the first seven months is a reflection of everything from slowing economic growth in the second half of the last decade to the Asian financial crisis erupting in 1997.
As these factors fade away, actual investment is likely to improve, and could begin growing at the end of the year, economists said.
According to calculations by Lehman Brothers, actual foreign direct investments could total $70-$75 billion in just two year's time, up from an estimated 45 billion dollars this year. — (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
