China's actual foreign direct investment (FDI) dropped slightly in the first 11 months of 2005, down 1.9 percent to US$53.1 billion, showed statistics released by the Ministry of Commerce on December 14.
According to figures, except in September, actual FDI has been falling year on year since April, with a two-digit slump in the April-June period, which has been rare in recent years.
However, the slower or even decline of FDI use does not imply the loss of China's attractiveness to foreign investors, said Ma Xiuhong, vice minister of Commerce.
A cheap labor force and huge market demand are still two advantages for the Chinese mainland, she said.
China was the third largest FDI receiver in 2004, only after the United States and Britain, according to statistics.
Li Yushi, an economist with the ministry referred to the less-than-two-percent figure as "trifling." The second half of the year saw a slowdown of the FDI drop, he said.
China remains a magnet for overseas investment, he added.
As the government came to aware that its natural resources had been in short supply since 2003, they began tightening land supply of overheated industries in 2004.
Since the beginning of this year, China's eastern part has faced an acute shortage of land, leading to the withdrawal of capital by foreign investors.
According to statistics, as one of China's major destinations for foreign investment, these areas consumed 86.25 percent of the total FDI by the end of 2004.
Besides, senior officials have more than once advocated unifying the income tax system of domestic companies and that of foreign-invested counterparts, which, to some extent, worried foreign investors, said experts.
The continuous lowering of FDI also has something to do with the ever-increasing global competition, he said.
In Asia, a major district of capital inflow, countries like India and Singapore also have stepped up absorbing foreign investment. South Asia witnessed an investment surge of 31 percent in 2004.
What's more, the world's largest source of investment, the United States, which invested over 20 percent of China's FDI since this April, spur the return of its overseas capital, causing a 45 percent plunge in overseas investment.
The decline of FDI is not necessarily a bad thing, acknowledged experts with the Ministry of Commerce, adding that it may hint at an improvement of China's use ratio of foreign investment.
Figures show that so far, merely 20 percent are in services while over 70 percent of the FDI is used in industry, especially the manufacturing sector, most of which is highly polluting and energy-intensive.
Things will change for the better as China fully opens its service market in 2006.
Zhao Jinping, a noted economist with the Development Research Center of the State Council, or the central Chinese government, said the FDI is expected to enter a new period of growth, with investment in services outpacing that in manufacturing.
Service sectors, like finance, insurance and transportation, will be invested in in a faster manner, he said.
Up to now, China's service industry has contributed only 30 percent of the total gross domestic product (GDP), according to the relevant figures.
Compared with 60 to 70 percent in developed nations, chances are still great for foreign investors in China's service areas.