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SHANGHAI, CHINA - FOREIGN direct investment into China jumped 75.2 per cent in January and February, the commerce industry said, as Asia's number two economy remained one of the globe's top investment destinations.
Foreign investment in the first two months of the year, calculated together due to the distorting effects of the Lunar New Year holiday, hit US$18.13 billion (S$25.14 billion), the ministry said in a statement.
In February, actual foreign direct investment stood at US$6.93 billion, up 38.3 per cent over the same period last year, while in January it rose 109.8 per cent to US$11.2 billion.
The sharp up tick in investment however sparked analysts concerns of a fresh surge in hot money inflows as higher interest rates and the pace of appreciation in the Chinese currency has picked up over the past four months.
'It's my feeling that there may be hot money flowing into the country in the form of direct foreign investment,' said Mr Wang Qian, a Hong Kong-based economist with JP Morgan.
The problem could become more pronounced as investors seek to profit on the spread between falling US interest rates and rising China rates, said Mr Wang.
Foreign direct investment, along with booming exports, are among the top factors resulting in China's massive build-up in foreign exchange reserves and excess liquidity in the financial system.
China's foreign exchange reserves, already the world's largest, hit US$1.53 trillion by the end of 2007, up more than 40 per cent from the previous year.
'Too much money inflow will worsen excess liquidity, which has an impact on various sectors... such as over investment and asset price surges,' said Mr Wang.
'It's potential trouble and a thorn in the thigh of policy makers.'
Hong Kong, the British Virgin Islands and Singapore were the top three sources of investment in the first two months of the year, the ministry said. -- AFP
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