In January, foreign investments jumped by 23.4 per cent from a year earlier. In 2010, foreign capital flowing into China reached record proportions. However, these investments are often speculative in nature, centred on real estate. Experts warn that Beijing must appreciate the yuan if it wants to curb inflation.

Beijing (AsiaNews/Agencies) – Foreign direct investment in China rose 23.4 per cent in January from a year earlier. However, revived foreign capital inflow is compounding the country’s excess monetary liquidity and runs the risk of further fuelling inflation.

China attracted US$ 10.03 billion in foreign investment last month, Commerce Ministry spokesman Yao Jian said. That is down from US.03 billion in December, but still much higher over a year ago.

Foreign direct investment hit a full-year record of US5.7 billion last year, an increase of 17.4 per cent year-on-year, after years of decline.

This is raising concerns because foreign investments are frustrating the government’s attempts to “cool” the economy after three interest-rate increases since October.

Faced with escalating inflation, especially food prices, the authorities’ response has been to tighten monetary supply. Nevertheless, inflation reached 4.9 per cent in January and foreign capital can only accentuate the trend.

More than 20 per cent of foreign investments went into real estate rather than other productive activities, further expanding what many consider an already highly speculative bubble.

Experts believe that the capital coming to China is speculative in nature, as investors bet on higher real estate prices and a stronger yuan to recoup their investments and make quick profits.

They also think Beijing will have to appreciate the yuan against the US dollar and bring it closer to its real value even if this should raise the price of Chinese goods and cut into Chinese exports.

“It is a consensus that the appreciation of the Chinese currency will certainly accelerate this year as it is an important part of the tightening, which will (make China) even more attractive to foreign capital,” Ren Xianfang, an economic analyst, said.

China's foreign direct investment data include investment by overseas companies in industries such as manufacturing, real estate, services and agriculture.

The government announced last week that it would set up a panel to vet proposed mergers and acquisitions by foreign firms to “safeguard national security” in areas like national defence, agriculture, energy, resources, infrastructure, transport, technology and equipment manufacturing.

• china
• foreign
• investments
• inflation
• yuan
• appreciation
• speculation