Foreign direct investment (FDI) in China continued to fall last month, but experts stressed that this does not mean foreign investors are losing confidence in the nation.

FDI in China stood at US$4.28 billion in July, down 5.49 per cent year-on-year, said the Ministry of Commerce, which approved 3,022 foreign-invested enterprises last month.

Citigroup economist Huang Yiping said the slight drop does not mean China is any less attractive to overseas investors, but it may indicate an overall slowdown in foreign investment.

"The figures represent less of a change in business confidence, it's just the end of the rush. In addition, more people are now thinking of diversification," said Huang.

Although he no longer expected to see a big jump in foreign investment flows to China, Huang said that the figure was still likely to remain at a relatively high level.

FDI in the country totalled US$32.7 billion in the past seven months, down 1.16 per cent year-on-year.

The government approved 22,772 foreign-funded enterprises in this period, down over 7 per cent from a year ago.

Hong Kong, the British Virgin Islands and Japan were China's major sources of FDI.

The ministry did not release data on contracted foreign direct investment deals which have been signed but are yet to be executed.

Meanwhile, the statistics published by the ministry left out foreign investment in the financial industry.

The ministry estimated that China's FDI dipped slightly to US$60.33 billion in 2005, but the figure was later revised to US$72.4 billion after the financial sector was taken into account.

The final result marked a growth of nearly 20 per cent compared to the previous year.

It showed that China's financial sectors, including banking, insurance and securities, had become a new destination for foreign direct investment. The sector attracted an annual FDI of less than US$2 billion in previous years.

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

So far, industry, especially the manufacturing sector, continues to absorb more than 70 per cent of foreign investment in China.

After the Chinese Government published new regulations on foreign investors' mergers and acquisitions (M&As) with Chinese companies, allowing share-swaps in M&As between them, this new method is expected to become a way of investing in the country.

Lu Jinyong, an investment researcher at the University of International Business and Trade, said foreign investors' M&As in China are on the rise and that the trend would continue.

He said in the past foreign investment to China largely focused on building new facilities in the country, but M&As accounted for over 80 per cent of total global FDI.

(China Daily 08/16/2006 page1)