Foreign Investment in China Climbs 15% on Consumer Demand

Foreign Investment in China Climbs 15% on Consumer Demand
Entertainers perform during the ground breaking ceremony for the Walt Disney Co. Shanghai Disney Resort. Photographer: Qilai Shen/Bloomberg

Foreign direct investment in China climbed 15 percent in April as companies including Starbucks Corp. and Walt Disney Co. expand to tap rising incomes in the world’s fastest-growing major economy.

Investment rose to $8.5 billion, the Ministry of Commerce said in a statement in Beijing today. The increase compared with a 33 percent gain in March. For the first four months, the total was $38.8 billion, a gain of 26 percent.

Foreign companies are targeting consumers in the most populous nation as earnings rise and families move to cities from rural areas. Inflows of capital add to the nation’s record $3 trillion foreign-exchange reserves, complicating central bank efforts to limit gains in the currency and curb inflation.

“Global investors are still attracted by China’s growth story,” Yao Wei, a Hong Kong-based economist with Societe Generale SA, said before today’s release. “The question is what the Chinese government is going to do about the capital inflows which are putting pressure on the yuan.”

China is aiming to increase urban and rural per capita net income by more than 7 percent a year in real terms over the next five years, the National Development and Reform Commission said on March 5. Premier Wen aims to shift economic growth to a model that is more driven by consumption and less reliant on exports and investment.

Reserves Pressure

Builders broke ground for a $4.4 billion Shanghai Disney Resort on April 8, its first theme park on mainland China. Starbucks, the world’s largest coffee-shop operator, is planning to expand its presence to 70 Chinese cities from 35, Chief Executive Officer Howard Schultz said in an interview April 26.

China’s foreign-exchange reserves rose by the second-highest amount on record in the first quarter. People’s Bank of China Governor Zhou Xiaochuan said last month the holdings may have led to excessive liquidity and are putting pressure on central bank operations that withdraw money from the financial system.

The PBOC raised banks’ reserve requirements for the fifth time this year on May 12, taking the level for the nation’s biggest commercial lenders to a record 21 percent.

The central bank has raised interest rates four times since mid-October. The PBOC has also allowed the yuan to appreciate at a faster pace against the dollar to help contain inflation that’s exceeded the government’s 4 percent target each month this year. The currency climbed 0.9 percent in April, the most this year.

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