A senior official with China’s motor vehicle manufacturer Chunlan recently confirmed the rumor about his company’s cooperation with an overseas auto giant-Japan’s Hino. A contract on the heavy-load deluxe truck joint venture valued at 5 billion yuan will be signed in June if no upsets occur.

Unilever, Amway, Nokia, Motorola, GE and Coca Cola have also declared that their China investment plans would not be affected by SARS. In the first four months of this year, 118 foreign permanent institutions were established in Beijing, while 61 closed, showing a net increase of 57. Even in April, when SARS ran rampant in the capital city, 31 foreign permanent institutions, including 148 engaged in the press, nine foreign schools, 5,574 economic, business and financial institutions, and 53 involved in transport.

       Maintaining Normal Operation

According to Amway, which has 100 outlets in China, the company’s production and R&D plans were not affected by SARS in the slightest degree. The company has invested 16 million yuan in China to build its largest overseas R&D center, with the aim of developing products catering to China’s market. More franchises will be set up this year, with the newly added number not lower than last year’s.

According to Wu Liang, public relations manage of the Unilever (China) Co. Ltd. in Shanghai, none of the company’s foreign employees has left China owing to the SARS epidemic. In spite of some impacts on business travel and cargo transportation, the company’s factories in Beijing, Hefei, Guangdong and Shandong have been operating according to plans, which has ensured normal production and marketing.

Data offered by the Management Committee of the Beijing Economic and Technological Development Zone shows that not one of the 873 production enterprises in the zone suspended production, nor did any of the 66 construction sites, and that none of the over 260 foreign employees left China owing to fear of SARS. Other world-known multinationals, such as Nokia, GE, Coca Cola and Wall’s have gone all out to ensure normal operation in accordance with the unified plan of the management committee. Particularly, the dozens of biotechnology and new medicine enterprises in the development zone have been running in full capacity to produce anti-epidemic medicines.

       Impact of SARS

Jin Baisheng, an official with the Ministry of Commerce, believes that China’s foreign capital utilization has entered a mature stage of steady development. Although the growth of China’s foreign capital utilization in the second quarter may slow down owing to the impact of SARS, that for the whole year is likely to speed up and top US$60 billion. Jin listed two reasons backing his estimate. First, the readjustment and growth in the first quarter foreshadowed an increase of over US$ 60 billion for the whole year. Second, a considerable amount of contractual foreign investment clinched last year will enter into the account book this year.

According to the statistics of the Ministry of Commerce, in the first three months of this year foreign direct investment totaled US$13.086 billion and committed overseas investment reached US$ 22.982 billion, both registering a high growth rate of nearly 60 percent. Last year, paid-in foreign investment in China was US$ 52.743 billion, enabling China to exceed the United States to become the most popular investment destination.

According to Morgan Stanley, the manufacturing industry in China’s inland areas is little affected by SARS. Though its production data in the second and third quarters may come down, the shortfall will be reversed at the end of this year. As the manufacturing industry accounts for 44 percent of China’s GDP, the impact of SARS on overseas investment is limited. Some foreign businesses have postponed but not cancelled their investment in China.

Most investors agree that the short-term impact of SARS will not change the profit-making capacity of enterprises. Postponed business activities of foreign-funded companies will temporarily affect the growth in contractual foreign direct investment, but the inflow of actual overseas investment will continue. In fact, the basic factors that influence investment decision-making are long-term ones, such as the market and the cost of labor. Furthermore, since investment involves long-term decision-making, the impact of temporary setbacks is limited. Affected by SARS, negotiations on foreign direct investment may suspend temporarily, but multinationals are unlikely to reverse decision.

       Prospects for Merging

Jin Baisheng noted that China has accumulated rich experiences in foreign capital utilization over the past 20-odd years. After its WTO accession, China has further opened its market, improved both soft and hard investment environment, maintained sustained and steady economic development and social stability, expedited the development of central and western region, and succeeded in the bid of hosting the 2008 Olympic Games and the 2010 World Expo. All these achievements will stimulate overseas business people to increase their investment in China. Meanwhile, the Chinese Government will put forward a series of policies to guide investment. Hence, China is likely to register continuous rapid increase in foreign capital utilization.

The annual growth in foreign direct investment during the 10th Five-Year Plan period (2001-05) is expected to exceed that of the previous five years to reach US$50 billion. According to an estimate based on the trend of global and China’s economic development in the coming decade, China’s competitive advantage in foreign capital utilization is unlikely to decline drastically between 2006-10, and the average annual increase will greatly exceed that between 2001-05, reaching US$100 billion.

The United States, which led the world in attracting foreign capital, absorbed US$50 billion in 1995 and US$300 billion in 2000. about 80 percent of foreign direct investment in the world comes from transnational merging. At present, only 5 percent of foreign direct investment absorbed by China is from merging. However, along with the promulgation of policies and decrees that are more operationally feasible, China will in time catch up with the worldwide trend of transnational merging. This will help tap China’s tremendous potential foreign capital absorption.