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Growth in China's use of foreign direct investments (FDI) slowed in May compared with the first four months of 2003 due to the mid-April SARS outbreak, according to the latest statistics from the Ministry of Commerce.

But the actual inflow of FDI still grew 39.47 per cent from the previous May to US$5.45 billion, although it was down from the first four months year-on-year growth rate of 51.03 per cent.

More obvious is the negative effect of SARS (sever acute respiratory syndrome) on China's contractual FDI in that month.

It grew by a mere 17.62 per cent from last May to US$7.7 billion, compared with the 51.03 per cent of the first four months.

Experts said the outbreak of SARS in mid-April in China had scared off foreign investors and impeded the signing of new projects and promised foreign capital.

Many international corporations put off or cancelled business travel and conferences in China because of uncertainties over the previously unknown disease.

Some foreign investors have delayed their investment plans in China due to unresolved fears over SARS and this has slowed down the growth of FDI in the second quarter, said Jin Baisheng, a senior researcher with the Chinese Academy of International Trade and Economic Co-operation.

A total of US$1 billion of FDI is expected to be delayed in the second quarter due to SARS.

But China's FDI is still likely to reach its US$60 billion target this year if SARS is quickly got under control, they predict.

Jin said he is confident the epidemic would quickly be controlled and thereafter China's use of FDI will rapidly increase in the second half of the year to compensate for the second quarter's poor performance.

He expected China's FDI to reach over US$60 billion this year on the back of strong growth in the first quarter and large quantities of contractual FDI last year.

Justin Yifu Lin, an economist with Peking University's China Centre for Economic Research, also said that when making investment plans, multinational corporations take into consideration long-term factors, including market capacity, labour costs and business environment, and are unlikely to cancel them in the event of unforeseen problems.

Zheng Xingjuan, chief economist of JP Morgan Chase's China division, said China's contractual FDI might not avoid being delayed because of concerns over SARS, but she expects actual FDI will proceed much as usual as such short-term factors will not alter the overall profitability of companies.

The actual inflow of foreign capital will not be conspicuously influenced by SARS and imports associated with it will continue to grow robustly, she said.

China's actual FDI increased 48.15 per cent year-on-year to US$23.27 billion and contractual volume rose 42.22 per cent to US$38.22 billion in the first five months, data from the Ministry of Commerce showed.

Until the end of May, China had made use of US$471.24 billion worth of FDI with a total of US$866.28 billion promised.


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