SHANGHAI: Rising costs have not scared off foreign companies who still rank Shanghai as the best place to invest in China, according to local authorities.

The municipal government's first "White Paper on the Environment for Foreign Investment in Shanghai," released yesterday, claims despite the increasing costs the city is still China's number one destination for foreign investment.

"It's true that Shanghai's raw materials and labour costs are higher than elsewhere, but they are offset by better profits," said Liu Jinping, vice-chairman of the Shanghai Foreign Investment Commission, which produced the report.

Nearly 90 per cent of the 213 foreign companies polled for the paper said Shanghai was their favourite investment destination on the Chinese mainland.

Speaking at a press conference to launch the report, Liu said Shanghai attracted a record 4.72 billion yuan (US$590 million) in actual foreign investment during the first seven months of the year.

"Foreign companies are seeing double-digit sales growth in Shanghai and profits are growing at more than 20 per cent," said Liu.

According to the White Paper, in 2004, the most recent year for which figures have been produced, the 422 Fortune 500 companies with bases in the Pudong New Area each paid an average of 42.5 million yuan (US$5.3 million) in taxes, while average net profits stood at 39 million yuan (US$4.87 million).

In the same year, average net profits for foreign companies in Pudong's Jinqiao Export Processing Zone stood at 203 million yuan (US$25.37 million).

Between 1999 and 2005, foreign companies invested US$27.18 billion in Shanghai, with an average annual increase of US$3.88 billion.

Foreign banks realized pre-tax profits of US$260 million in 2005, up 56.4 per cent over the year before and accounting for 58.3 per cent of all profits by foreign banks in China.

But at the same time as generating rising profits, foreign companies have also been forced to contend with mounting costs.

According to the White Paper, the monthly salary for Shanghai employees rose to 2,235 yuan (US$279.37) in 2005, around 26,800 yuan (US$3,350) per year, 9.9 per cent more than the year before.

The average annual income for human resources staff at a foreign company was 141,293 yuan (US$17,662) in 2005.

As staffing costs have risen so have rental prices, with leasing costs for top-class offices growing 15 per cent year-on-year, the White Paper reported.

Last year, the city's average rental price was US$0.84 per square metre per day, while in the Lujiazui business district in Pudong prices were more than US$1 per square metre per day.

On Nanjing West Road, the city's main shopping and commercial street on the western side of the Huangpu River, rents were US$1.04 per square metre per day.

"The growth of labour costs and rentals is a good thing because it means the city is growing very quickly," Liu added. "What we can do now is improve government services and improve the efficiency of land use."

Last year 1,020 energy-intensive and heavily-polluting plants were removed from Shanghai's 11 districts, freeing up nearly 670 hectares of land.

(China Daily 08/08/2006 page1)