By Xin Zhiming (China Daily)
Updated: 2007-09-29 07:17

A World Bank report on China's foreign direct investment (FDI) policy praised the country for its success in attracting foreign capital and suggests it further encourage FDI inflows.

China has attracted about one-quarter of FDI flowing into developing countries in the past decade, said the report.

In 2004, China's FDI totaled $60.6 billion, accounting for 9.9 percent of the global total.

The World Bank attributed China's success in attracting FDI to its improved investment climate and competitive employment costs, as well as its rapidly expanding domestic market in recent years.

However, the report estimated that about 20-30 percent of China's registered FDI is actually domestic capital transferred abroad before returning in the guise of foreign capital to enjoy tax and other preferential policies.

Moreover, the report pointed to China's structural deficiencies in using FDI.

The nation's western regions, for example, attracted only 2 percent of FDI. On the other hand, most of the foreign capital has entered the industrial and manufacturing sectors, rather than services or agriculture, sectors that are more crucial for the nation's economic restructuring, the report said.

From 2006 to 2010, China is expected to receive 30 percent of the projected $250 billion FDI inflow to developing countries, the World Bank estimated.

During the 11th Five-Year Plan (2006-10), China is likely to focus on more balanced development and more attention will be paid to domestic development, regional balance and reduction in energy and resource use, said Zhao Min, World Bank economist and lead author of the report.

"For FDI policies, this would imply that greater attention should be given to investments in domestically focused industries, to investment in the interior, and to investments with a higher level of technology."

The report warned that the rise of India, Brazil, Thailand and Mexico as major FDI receivers may divert China's FDI inflows and the country should try to improve its investment environment.

The report suggested that China simplify investment approval procedures, which it said are complicated, and help foreign companies raise funds within China.