FDI rises 45.5% in first six months

By Wang Yanlin  |   2008-7-11  |     ONLINE EDITION

FOREIGN direct investment in China rose 45.5 percent year on year in the first half to US$52.4 billion, the Ministry of Commerce said today.

The authority did not release the June figure. But based on FDI growth of 54.97 percent from January to May, last month's figure likely slowed.

However, analysts said the government needs to closely track the inflow of speculative capital, or hot money, and take stricter measures to deal with it.

"One clue regarding hot money is that although the trade surplus has started to decrease, foreign exchange reserves are still growing rapidly and capital may enter in the guise of FDI," said Li Maoyu, an analyst with Changjiang Securities Co.

Last month, China's trade surplus fell 20.6 percent from a year earlier to US$21.3 billion. It was the third straight month the surplus reported slower growth.

However, foreign exchange reserves jumped to US$1.8 trillion by May, with an increase of US$53.7 billion each month through May. It compared to last year's monthly average increase of US$38 billion.

There was no official calculation of how much hot money existed in the system. But industrial analysts estimated at least US$147.9 billion of hot money had flowed into the country in the first five months and it pushed the number to as much as US$600 billion in total.

"The government should take more measures to control the inflow of hot money, which could fan inflation and hurt the economy, especially when everyone expects the yuan to continue appreciating," said Li.

The yuan has risen 6.8 percent versus the dollar this year and 21 percent since the fixed exchange rate was scrapped in July 2005.

Last month, the central government said it would enhance cross-border capital flow management by shoring up efforts to ensure forex transactions were based on real trade activities.