The effects of SARS are finally starting to show up on China's financial statements as foreign direct investment plunged 37.5 percent in July from the same month last year.

That marks the first time in 31 months that China's FDI has fallen.

Analysts blame the drop on the SARS epidemic and rising business costs in coastal areas.

China received US$3.1 billion in FDI last month, the Ministry of Commerce reported yesterday. From January to July, China attracted US$33.4 billion in FDI, up 26.6 percent year-on-year. Contracted funds were valued at US$59.2 billion during the same period, up 33.96 percent from a year earlier.

But contracted funds, an indicator of future investment inflow, dropped 21 percent in July to just US$8.24 billion, the ministry said.

However, the situation in Shanghai was different. The city drew US$947 million in contracted foreign investment in July, up 33.8 percent from last year, according to Shanghai Investment Commission.

From january to July, the city received US$7 billion in contracted foreign funds, up 39.2 percent from 2002. The manufacturing sector allured US$4.3 billion in contracted capital, up 43.1 percent year-on-year. While funds worth US$2.65 billion flowed to the service sector, up 33.5 percent year-on-year.

"A direct reason for the funds slump in the country is that the SARS kept foreign investors away in April and May, which will influence FDI in July and onward," said Zhou Dunren, a professor at Fudan University's Center for American Studies.

Foreign direct investment actually rose during the height of the SARS problem, rising nearly 40 percent in April and May, and 56.7 percent for the first quarter, the ministry said.

The growth rate fell to a mere 2.5 percent in June, suggesting a slowdown.

Zhou said he expects the slowdown to be temporary as China remains a favored investment destination be-cause of its low costs and a vast market.

Foreign investment companies seem to agree.

"As SARS has been fully controlled, our investment confidence hasn't been shaken a bit," said Ernst Behrens, president and chief executive of Siemens Ltd China.

Several multinationals have announced aggressive investment plans in China, dispelling further concerns.

Samsung electronics Co, the world's leading electronic products manufacturer, said last month it aims to expand its production in China by fourfold over the next seven years to reach US$40 million.

Otis elevator, the world's biggest elevator company, said last month that it will shift its business focus to China by setting up a research and development center in Shanghai.

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