The government releases figures for 2009, showing a 2.6 per cent drop in foreign direct investments over the previous year. It also shows that foreign exchange reserves keep on rising, and now total US$ 2.399 trillion. The danger of speculation looms over the horizon.

Beijing (AsiaNews/Agencies) – For the first time since 2005, China's inbound foreign direct investment fell in 2009 as a result of the worldwide financial crisis. The mainland attracted “only” US$ 90 billion, 2.6 per cent less than in 2008, a Commerce Ministry spokesperson said on Friday.

In December however, China attracted US$ 12.1 billion in foreign direct investment, that is up 103 per cent from a year earlier. December has often reflected rises in inbound foreign direct investments for accounting reasons.

China attracted a record US$ 92.4 billion in non-financial foreign direct investments in 2008, an increase of 23.6 per cent from 2007.

But the really significant figures reported by the government concern China’s foreign-exchange reserves, which  climbed by about US$ 453 billion in 2009 to a record .399 trillion in December, the world’s largest, as the government prevented an appreciation in the yuan, a stance that may shift this year as the nation’s exports recover.

Indeed, these figures underscore the danger that the yuan peg and inflows of cash from abroad might stoke bubbles in China’s asset markets.

To avoid currency speculation, the Chinese government is looking at new ways to monitor speculative funds.

“It’s a dilemma—you can’t keep the yuan where it is forever, yet allowing it to move may stoke speculation,” said Brian Jackson, a Hong Kong-based emerging markets strategist at the Royal Bank of Canada. “The central bank will have to monitor and stem hot-money inflows very carefully.”

• china
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• exchange
• reserves
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• direct
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• speculation