But the challenge for China is to broaden its attraction to foreign investors, experts say

China's foreign direct investment grew 0.05 percent year-on-year in May, offering a slim prospect that recovery is on the way, but experts say it needs to look for new areas to attract foreign investment if such growth is to be improved.

The May figure was $9.23 billion (7.4 billion euros).

"It was the first month this year for (the figure) to rise, and ended six consecutive months of falls," says Shen Danyang, spokesman for the Ministry of Commerce. "That means foreign investors still have faith in the Chinese market and showed more eagerness to invest in China."

The improved figure could be attributed to investment for big projects from countries including Switzerland and Germany, steady investment growth from US companies and growing investment confidence among Asian countries, he says.

In the first five months of this year investment from the European Union fell 5.06 percent, to $2.78 billion, compared with the corresponding months last year. Comparing the same periods, investment from the US rose 0.29 percent to $1.29 billion.

"As far as we see, multinationals are still confident on the Chinese market," Shen says.

In a survey published by the European Union Chamber of Commerce in China in April, 22 percent of surveyed European companies operating in China said they were considering switching their investments to other countries.

However, statistics from the Ministry of Commerce showed direct investment from the EU was a record $879 million in May, a rise of 202 percent year-on-year.

"Although the figures are quite seasonal, it is very encouraging that European companies are still willing to invest in China, given the sluggish eurozone economy," says Han Xiushen, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a Ministry of Commerce think tank. "However, we cannot ignore the fact that investment growth in May was largely because of big projects from countries such as Switzerland and Germany, which are not hit hard by the debt crisis."

The EU Summit, to be held in Brussels on June 28 and 29, would barely be able to reach a satisfactory consensus because the German government faces fierce opposition at home over issuing bonds to save eurozone countries, Han says.

"That means Germany will continue to play a tough role in the rescue plans until next year, and the stimulus plan of 130 billion euros ($162 billion) will not be as effective as expected," she says, adding that China should not rely on EU companies in looking for foreign direct investment.

The growth in May is encouraging, but it does not reverse the decreases of earlier months, she says.

In the first five months of this year 9,261 new foreign companies were set up in China, 12.2 percent less than in the corresponding period last year. Total foreign direct investment fell 1.9 percent to $47.1 billion.

"The biggest problem China faces is to look for new sectors to attract stable and growing foreign investment in the next period," says Nie Pingxiang, another researcher with the Chinese Academy of International Trade and Economic Cooperation. "Manufacturing industries in China are losing their attraction because of rising labor costs, and many modern service industries, which foreign investors have great interest in, have high market entry thresholds."

With low-end manufacturers moving to Southeast Asian countries and high-end manufacturers repatriating, manufacturing industries are losing their battle to attract foreign investment.

In the first five months of this year, manufacturing industries received foreign investment of $21.1 billion, accounting for 44.9 percent of China's total, while service industries received 46.9 percent of total foreign direct investment, worth $22.1 billion.

"It is time for China to lift some market entrance barriers in professional service industries to stimulate the sustainable growth of foreign direct investment," Nie says.

Dirk Moens, secretary-general of the European Union Chamber of Commerce in China, agreed that European companies are willing to invest in more areas if there is easier market access.

"In the professional services sectors, our member companies want (a bigger share) in the Chinese market, but many of these sectors are hard for foreign companies to access."

The growth of foreign direct investment is likely to be low for the rest of the year, Nie says.

"It would be optimistic to forecast growth this year to reach 4 percent to 5 percent," she says.

With foreign direct investment, China's trade figures also rebounded in May, the value of imports and exports reaching $343.5 billion, a rise of 14.1 percent year-on-year.

"While the growth is insignificant, we still believe it is a positive sign for China's foreign trade," Shen says. "Figures for June can be expected to keep up the growth from May, and it is possible that trade will grow by 10 percent over the year."

In contrast to the gloomy foreign direct investment and trade figures, China's overseas direct investment is growing apace. In the first five months of the year Chinese companies invested $28.52 billion outside China, rising 40.2 percent year-on-year.

Cui Fan, a professor at the University of International Business and Economics in Beijing, says that with the developed nations deep in crisis, investments from developing countries are important to the global economy, and the high growth in China's overseas direct investment means the economy is still vibrant.

yanyiqi@chinadaily.com.cn

(China Daily 06/29/2012 page3)