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Stronger RMB won't affect investment much
(China Daily)
Updated: 2005-07-26 09:05

The revaluation of China's currency the renminbi, or yuan, is not expected to make a big impact on the flow of foreign direct investment (FDI) into China.

The People's Bank of China unexpectedly announced the lifting of the renmibi's peg to the US dollar and adjusted the exchange rate to 8.11 yuan to one dollar, from the previous 8.28 yuan.

"The appreciation of the renminbi will certainly have an effect on the flow of FDI into the country, particularly on investment into fields concerned with exports," said Lu Jinyong, a senior trade researcher with University of International Business and Economics.

As the appreciation makes Chinese goods less competitive in the global marketplace, investors dealing with exports will have to bear higher costs.

"Foreign investors will be more cautious when adding investment to existing projects or launching new projects in China," Lu said.

The slight adjustment of 2 per cent is not expected to have a large impact, but it is still highly relevant to foreign investors.

"Investors in China are likely to monitor whether or not the central bank will make further adjustments to the exchange rate in the short term," he said.

Meanwhile, the expert stressed, that the exchange rate was not the only element that foreign investors took into consideration when expanding their business into China.

"First of all, international enterprises will have to consider their overall global strategy before setting up a business in China," he said.

He explained that to most large international players China is an indispensable arena.

They are still expected to continue investing in China, especially considering the country's advantages in geography, resources, policies, and labour. These aspects are much more important to investors than the exchange rate, he said.

Lu's thoughts were echoed by those of Mei Xinyu, a trade expert with the Chinese Academy of International and Economic Co-operation, who added that the appreciation of the renminbi would help to boost the restructuring of foreign investment into the country as well as improve its utilization.

Conversely, Lu said the revaluation of the renminbi is expected to help increase outward Chinese investment.

The experts agreed that it is very unlikely that these effects would become evident before the end of this year.

Lu did, however, concede that FDI into China in 2005 would not exceed that of last year. "It will be a remarkable achievement if it reaches last year's levels because the base figure is considerably large, " he said.

He added that the international investment environment this year was not as good as some economists had predicted.

In 2004, the country attracted some US$60.6 billion in realized FDI, up 13.32 per cent on 2003, while the figure for contracted foreign investment stood at US$153.5 billion, according to statistics published by China's Ministry of Commerce.

FDI into China has also seen a slight decrease in the past few months of this year.

Government data showed China realized FDI of some US$28.6 billion in the first six months of 2005, reflecting a decrease of 3.18 per cent from the previous year.

The contracted foreign investment figures, that indicate the future trend of FDI flows, rose some 18.99 per cent to US$86.2 during the same period.

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