The actual foreign direct investment (FDI) in China stood at US$48.4 billion in the first 10 months this year, down 2.12 percent from a year earlier, according to the latest statistics published yesterday by Ministry of Commerce.

This is despite the fact that FDI increased by about 2 percent in October over the same month last year.

Contracted direct investment into China, the indicator of future investment flows, stood at US$145.1 billion from January to October, reflecting an increase of 22.5 percent over the previous year.

The ministry said the government had approved 35,300 new foreign-invested ventures, up 0.48 percent year-on-year.

Based on official statistics, monthly FDI in October grew by 1.96 percent to US$5.2 billion, while contracted investment rose 27.6 percent to US$14.8 billion. The government approved 3,077 foreign-invested enterprises in October.

The ministry said that Hong Kong was the top investment source in the first 10 months of this year, followed by the British Virgin Islands and then Japan.

This year's slow-down in FDI is in sharp contrast to the 13.3 percent annual growth achieved last year.

Experts said that the FDI slip does not mean that China has lost its attraction for foreign investors.

On the contrary, the decline and withdrawal in some areas is rational and normal, said Liu Manping, a researcher with the National Development and Reform Commission.

"FDI declines seen in some heavy chemical industries are in accord with the country's economic control measures in these overheated sectors," he said.

Some overseas companies slowed their investment in the steel, real estate and auto-making sectors.

Rob Subbaraman, a Tokyo-based economist with Lehman Brothers Holdings Inc, said: "The pipeline still looks good.

"China is still a very attractive place to produce goods, and not just because of the cheap labour."

In FDI terms, China ranks second after the United States, which received US$96 billion in FDI in 2004, according to a report published by the United Nations Conference on Trade and Development. Global FDI climbed 2 percent to US$648 billion last year.

Many foreign companies, which mainly operate factories and processing centers in China, are moving their research and development centers to China.

For example, Ericsson, the world's largest maker of mobile phone networks, said in September it would invest US$1 billion in manufacturing and research in China over the next five years.

The UN report said there had been over 700 foreign research and development laboratories set up in China since Motorola set up the first one in 1993.

Liu said China should adopt diversified strategies to improve FDI flows into China.

For example, the expert suggested highly developed areas such as East China should make more rational investment choices.

"They should prioritize investment for foreign research and development (R&D) institutions and multinational giants."

The expert said China, in line with the requirements of the country's macro-control policies, should decline projects that consume too much energy, produce too much pollution, and have low added-value.

"Introducing more capital in high and new technology industries will help sharpen their competitive edge," said Liu.

(China Daily November 15, 2005)