Although severe acute respiratory syndrome (SARS) could cause the delay of an expected US$1 billion in China's total foreign investment in the second quarter, the foreign direct investment (FDI) figure for the year is still likely to hit US$60 billion, Chinese experts say.

But they warn if SARS is still out of control in the third or even fourth quarter, the delayed foreign capital may not come and the epidemic will threaten another US$5 billion of FDI in the second half of the year.

Many international corporations have put off or cancelled business travel and conferences in China since the outbreak of SARS.

Some foreign investors will delay their investment plans in China due to fears over the disease and this may slow down the growth of FDI in the second quarter, said Jin Bosheng, a senior researcher with the Chinese Academy of International Trade and Economic Co-operation.

FDI is expected to decrease by US$1 billion in the second quarter due to SARS, according to Gao Huiqing, an expert with the State Information Center.

Zheng Xingjuan, chief economist of JP Morgan Chase's China division, said China's contracted FDI will probably be delayed due to concerns over SARS, but she expects actual FDI will continue as usual because such short-term factors will not change firms' profitability.

Actual foreign capital inflow will not be conspicuously influenced by SARS and imports associated with it will continue to grow robustly, she said.

But Zhang Hanlin, a professor with the Beijing-based University of International Business and Economics, said concerns over SARS could dwarf China's FDI by between US$5 billion and US$6 billion this year.

Gao agreed, saying another US$5 billion in FDI may not come China's way in the second half of the year due to the disease.

But he said hopefully SARS would be brought under control in three months, so the risk would not materialize and the delayed FDI in the second quarter could be compensated.

Jin also said he is confident the epidemic will be controlled in two or three months and after that, China's FDI will rapidly increase in the second half of the year to compensate for the second quarter shortfall.

He expects the FDI to reach over US$60 billion this year on the back of strong growth in the first quarter and last year's large quantity of contracted FDI.

Justin Yifu Lin, an economist with Peking University's China Center for Economic Research, said when making investment plans, multinational corporations take into consideration long-term factors including market capacity, labor costs and the business environment. They are unlikely to cancel their plans because of SARS.

China's actual use of FDI surpassed the United States for the first time last year and become the world's largest.

It rose 12.51 per cent to US$52.74 billion, according to the Ministry of Commerce.

Contracted FDI increased 19.62 per cent to US$82.77 billion, boosted by low manufacturing costs, a huge potential market, China's World Trade Organization membership and rapid economic growth at home.

Actual FDI in China hit US$13.09 billion in the first quarter of this year, up 56.7 per cent from a year earlier, according to the Ministry of Commerce.

Contracted foreign investment, an indicator of future trends, rose 59.6 per cent year-on-year in January to March to US$22.98 billion, the ministry said.

(China Daily May 12, 2003)