The investment craze is expected to carry on with Shanghai's bid to become an IT hub in Asia.

Multinational chemical companies will also make big investments in Shanghai with the construction of the largest chemical park in China, making the city one of the key chemical industrial bases in East Asia.

The investment growth is subjected to global economic changes and the influence of China's pending entry into the World Trade Organization (WTO).

But Shanghai may lose some of its glow to China's inland provinces in the years to come as concerns rise over higher labour and land costs. Analysts expect a major shift to less developed inland regions to occur.

Currently the booming IT industry has consolidated the investment flow. Contracted overseas funds, a major index of foreign commitment in Shanghai, continued a strong rebound in the last two years, breaking the official US$4 billion target to hit US$6.39 billion in 2000, up 55.7 per cent on 1999.

"The breakthrough is mainly the result of growing high-tech investment, especially giant projects related to the semi-conductor business," said Liu Jinping, vice-chairman of Shanghai Municipal Foreign Investment Commission in charge of the city's overseas investment. Shanghai labels an overseas investment above US$100 million as a giant project.

The top projects were two wafer production lines established in Zhangjiang High-Tech Park in Pudong.

One is the US$1.63 billion Shanghai Grace Semiconductor Manufacturing Corp, the largest overseas investment in Shanghai, and the other is a US$1.4 billion project funded by Semiconductor Manufacturing International Corporation, another Taiwan-based semiconductor giant.

Liu said investments along the supply chain for the two giant projects will provide integrated circuits design, assembly and packaging.

Multinational chemical giants from Britain and Germany are expected to speed up their applications for the operation of a multibillion-dollar chemical complex on the shores of Hangzhou Bay in the city's southwest suburbs this year.

Liu said there will be one or two giant projects related to chemical refinery to be set up in the park by the end of the year.

Liu did not reveal the names of any multinationals involved in the bidding.

The process to approve other projects will be cut shorter.

Concerns about Shanghai's higher labour and land costs have been on the rise as the Chinese Government calls for overseas investment into its infrastructure business in China's western regions.

"The large untapped market coupled with cheap labour and land, and favourable incentives will be a big attraction, especially in labour-intensive productions," said Andy Cheung, partner of US-based Arthur Andersen's Shanghai office, a leading global consulting firm.

Lu Deming, a senior economist in Fudan University, is optimistic about overseas investment in Shanghai. He said a slight slump in the US economy may even benefit China's foreign investment as US-based companies try to find new places for business opportunities.

"American firms will try to find alternative locations for investment after facing slumping business at home, which may encourage more foreign funds into Shanghai," said Lu.

But Liu cautioned that a wild card still awaits Shanghai.

"Foreign investment into developing countries from developed countries is losing steam as investment flows between developed countries increases," he said.

(China Daily 01/12/2001)