Foreign direct investment (FDI) in China dropped for the fifth consecutive month in October, but an increase of over 40 per cent in contractual investment indicates that prospects are still bright, experts said.

The Ministry of Commerce said yesterday that actual foreign direct investment in China was US$43.56 billion in the January to October period, a rise of 5.81 per cent from a year earlier.

Contracted foreign investment, an indicator of future trends, rose 33.75 per cent year-on-year in the first 10 months to US$88.68 billion, the ministry said.

Foreign investment slipped by more than 30 per cent in October from a year earlier to US$3.2 billion while contracted investment in the single month surged by 43 per cent to US$6.6 billion.

Jin Bosheng, director of the foreign investment research department of the Chinese Academy of International Trade and Economic Co-operation, said there is no need to make a fuss over the drops since momentum is still robust.

Jin, who had attributed the drops to the aftermath of the deadly SARS (severe acute respiratory syndrome) outbreak earlier this year, did not believe the SARS impact would be so big and said there are other reasons behind it which he declined to elaborate upon.

Jin changed his prediction over the FDI increase of 14 per cent, saying it is difficult to reach.

"A 10 per cent growth is still achievable if the actual investment in the remaining two months undergoes a strong rebound,'' Jin said.

The country drew nearly US$53 billion in foreign funds in 2002, and officials have said the figure could rise to about US$57 billion this year.

But Jin is confident the actual FDI is bound to boom within the early part of next year, given the dynamic growth in contractual FDI.

"China will continue to be a hot destination for FDI, since no drastic changes happen in its favourable macro-situation,'' Jin said.

He explained that China has kept strong economic performance, quick foreign trade growth and expanding opening areas for investors.

China is also sticking to its stable political and secure investment environment, whereas many other countries are troubled by fears of terrorism and other matters.

Some foreign economists told an investment forum yesterday in Beijing that China is sitting in a period of transition in attracting foreign investment.

"Foreign investors are changing their main motives when choosing China,'' Clarence Kwan, chairman of China Subcommittee, US Council of International Business, told the First International Investment Promotion Forum yesterday.

"Before, they came to China more for resources, and now, they opt for the huge market here.''

While low costs in labour and raw materials may have been the only big magnet in China in the past two decades, foreigners coming to China are looking more to high revenues and they are turning opportunistic investment into long-term commitment to the alluring market.

The types of business investors are changing as well, according to Kwan, who is also deputy managing partner of Deloitte & Touche's China Services.

More and more companies are expanding their reach into services in China, in addition to investing in manufacturing factories which have long been the major power driving the injection of foreign funds.

Since many corporate giants have consolidated their footings in China, mid-sized enterprises in the supply chains of multinationals are also about to come in.

Experts at the forum advise China fine-tune its policy environment to better accommodate the new trends.

Ken Davies, a senior economist with the Organization for Economic Co-operation and Development, suggests China further liberalize the approval process and open its capital market.

China needs to raise project value limits for local approval and produce a genuine "one-stop shop'' procedure for investors.

Fast-tracking national approval and developing an automatic approval system are essential, Davies added.

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