Foreign direct investment (FDI) to China was US$4.51 billion last month, down 7.8 per cent year-on-year. But Ministry of Commerce spokesperson Chong Quan yesterday described the drop as a "normal fluctuation."

From January to May, however, FDI totalled US$22.99 billion, a slight increase of 2.7 per cent over a year ago.

The Chinese Government approved 15,659 foreign-invested enterprises from January to May, down by 4.7 per cent year-on-year.

Hong Kong, the British Virgin Islands and Japan were China's major FDI sources. The ministry did not release the data on contracted FDI, which are deals signed but not yet executed.

Chong said China had seen a steady growth in FDI flows in past years, including many mergers and acquisitions (M&A), which are a common practice worldwide.

In January, the ministry estimated that FDI to the country dipped 0.5 per cent year-on-year to US$60.33 billion in 2005.

But the figure was later revised to US$72.4 billion, a growth of nearly 20 per cent on the previous year when investment to the financial sector, including banking, insurance and securities, was calculated.

Vice-Minister of Commerce Ma Xiuhong said in an earlier interview that the financial sector, which previously attracted less than US$2 billion a year, has become a major destination for FDI.

The increase of investment flows to the financial sector has contributed to China's opening up its market to foreign investors in line with its commitments to the World Trade Organization.

Experts predicted that the financial and service sectors would continue to attract growing investment this year.

Zhao Jinping, director of Foreign Economic Studies at the State Council Development Research Centre, said service sector investment growth would be faster than growth in the manufacturing sector as China fully opens its services market this year.

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