Seven factors will stall China’s use of FDI in 2007 according to an article recently published by the Research Institute of the Ministry of Commerce. In the article, Shan Danyang, vice dean of the institute stated that China’s use of FDI in 2007 will decline, following the trend from last year (FDI use in 2006 was US$69.47 billion, down 4.1 percent), but will be better structured. He also foresees more mergers and acquisitions by foreign investors.
The seven factors Shen cited as restraining China’s use of FDI in 2007 are:
China is increasingly losing its cost advantage
Newly published policies regulating FDI in real estate and M&As will have an impact on the inflow of FDI
The newly adopted corporate tax law has led to some investors choosing to watch before acting
As China adjusts its industrial policies, more focus will be put on environmental and energy efficiency issues
Trade imbalances and RMB appreciation have lowered the expectations of export-oriented foreign investors
Growing private capital has decreased the need for FDI
The improvement of the capital markets and investment environment, and the legal requirements for foreign M&As has prevented the expansion of foreign M&As
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