Foreign Investment in China Climbs to $74.7 Billion in 2007

January 19, 2008 05:29 EST
By Li Yanping

Jan. 19 (Bloomberg) -- Foreign direct investment in China rose to $74.7 billion in 2007 as restrictions on companies' spending failed to outweigh the attractions of low costs and the world's fastest-growing major economy.

State-run Xinhua News Agency released the figure today, citing information from the Ministry of Commerce. Total foreign investment including financial investment in China was $69.5 billion in 2006, and the number excluding financial investment stood at $63 billion, according to government statistics.

Thirty years after opening up to investment from abroad, China has become more picky, steering spending toward less- developed regions and industries such as technology and services. Foreign investors are buying into an economy that the government says expanded as much as 11.5 percent last year.

“China remains an attractive destination for foreign investment with low labor costs, and a well-developed manufacturing capacity,'' said Hao Hongmei, a researcher at the Chinese Academy of International Trade and Economic Cooperation, an affiliate of the Ministry of Commerce.

Ford Motor Co., the second-biggest U.S.-based automaker, is expanding Chinese manufacturing operations that began in 2001.
 
In guidelines effective Dec. 1, China said it was limiting foreign investment in ``important mineral resources'' and industries that pollute heavily and consume too many resources.
``We strongly recommend foreign investment take an active part in the government's plan to revitalize the northeast rustbelt region and to develop central and western China's economy,'' Vice Premier Wu Yi said last year.

Tax Increase

Foreign companies will pay more tax as a unified 25 percent rate for overseas and local firms is phased in from this month. Investors in Chinese factories also face reduced export incentives as the government seeks to narrow the trade surplus and limit the expansion of low-value manufacturing.

China introduced an employment law on Jan. 1 that adds open- ended work contracts and severance pay, potentially increasing employers' costs. The average urban wage in China rose 15 percent to 20,856 yuan ($2875) in 2006 from a year earlier, according to government data.

``As China's investment climate changes, there's a risk that countries such as Vietnam will become competitive alternatives for global investors because of cheaper labor and more favorable policies,'' said researcher Hao.

Taiwan's Quanta Computer Inc., the world's biggest maker of laptop computers for other businesses, is assessing locations in Vietnam and other emerging countries to build its first factory outside China, the company said on Jan. 2.

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