China FDI rises strongly in January, outlook bright

Foreign direct investment to China climbed 23.4% in the year to January to USD 10 billion, the Commerce Ministry said on Thursday, as global firms stream in despite concerns about market barriers and rising labour costs.

Inflows, which surged in the years after the country joined the World Trade Organisation in 2001, are in the midst of recovering after being hit hard by the global economic slowdown.

"With China's economic restructuring going on, foreign direct investment in the service sector will surely expand more quickly in the future," spokesman Yao Jian told a regular briefing.

Rising labour costs and raw material prices have been driving foreign manufacturers from the eastern part of China to the less developed inland areas, Yao said.

China's fledgling service industry drew USD 4.69 billion in foreign investment in January, up 31.8% from a year earlier, he said.

China attracted USD 105.7 billion in FDI in 2010, including a record USD 14 billion in December.

Foreign direct investment, along with trade surpluses and speculative inflows, have put upward pressure on the yuan and added to inflation risks.

Yao said the country will attract more foreign investment in the form of acquisitions, which accounted for only three percent of the latest total FDI.

China will launch a state-level investment review body to check that acquisition deals struck by foreign firms in one of the world's fastest-growing economies do not endanger "national security".

Major global firms like General Electric have expressed concerns that Beijing's "indigenous innovation" policies could hinder its ability to compete in China.

But global companies remain bullish on China's growth prospects, particularly as the government tries to boost domestic consumption to reduce reliance on exports and investment.

Meanwhile, China's outbound direct investment rose 15.9% in the year to January to USD 2.74 billion, the Commerce Ministry said.