The Ministry of Commerce (MOFCOM) has issued guidelines on foreign investment for 2007 which state that China will encourage foreigners to invest more in the service sector and high-tech companies this year while restricting overseas investment in real estate projects.

According to the guidelines, foreign investment will be channelled into the high-tech, modern service and high-end manufacturing sectors as well as into research and development, energy-efficient and environmentally sound projects. MOFCOM is stressing that local governments and related departments should pay more attention to the quality of use of FDI.

The guidelines outline several steps MOFCOM will take regarding FDI in 2007:

• Stress quality over quantity
• Improve the investment environment
• Guide FDI to develop domestic capital markets
• Encourage FDI in western China
• Develop a modern service sector
• Regulate foreign M&As
• Create new growth points for the development zones
• Regulate misconduct in attracting FDI
• Restrict FDI in the real estate sector

China approved the establishment of 41,485 overseas-funded enterprises in 2006, down 5.76 percent from the previous year, and used US$69.5 biilion in foreign capital, down 4.06 percent.

The ministry said under China’s macro economic control scheme, no foreign investment projects in the overheated steel, cement and electrolysed aluminium sectors have been approved since 2005.

Meanwhile, more foreign capital flowed to the high-tech telecom equipment manufacturing and computer production sectors last year. The telecom equipment sector recorded a 61.4 percent growth in foreign capital actually used, while the computer sector recorded a 48.63 percent growth.

We are still waiting for the new Catalogue for the Guidance of Foreign Investment Industries, which we expect to be released later this year. The catalogue categorises different industries as “encouraged”, “permitted”, “restricted” and “prohibited” to FDI and a substantial revision based on Beijing’s move to promote the high-tech and energy sectors is expected. The last catalogue was issued in 2004.