Property drives FDI surge in services

Foreign direct investment (FDI) in the property market drove up the city's FDI in the services sector by over 30 per cent in the first half of this year, as banking and IT outsourcing began to catch up.

According to the Shanghai Economic Relations & Trade Commission, Shanghai posted US$4.72 billion in contracted FDI in services in the first six months, surging 30.35 per cent year-on-year.

That lifted FDI in services from slightly over 50 per cent last year to 65.3 per cent of the city's total contracted FDI, which stood at US$7.22 billion at the end of June.

Forty per cent of the FDI in services came from property investment, according to the commission.

In the first six months, Shanghai approved 35 property projects, which involved a contracted investment of US$1.89 billion, 1.7 times that of the same period of last year.

The property-driven 30 per cent growth looks impressive, but experts warn that it may not be as positive as it appears.

Alfred Shum, executive partner of Ernst & Young in China, one of the big four international accounting firms, told China Daily that real estate would always be dominated by local players and foreign investors would never get the upper hand.

"Land and urban planning, the two key elements to property investors, are in the hands of the government," Shum said. "If the government wants to stop foreign investment, there is nothing the foreign investors can do."

He said property investment usually involves large sums of money, so it easily inflates FDI figures, but does not substantially drive up the local economy.

Besides, there have been strong indications that the central government will soon rein in foreign investment in the property market by announcing a number of restrictive measures.

That is expected to slow down FDI in the real estate market for the rest of the year.

"The 30 per cent surge in FDI in services is sort of inflated," said Hua Min, a professor from Fudan University who is also a consultant to the Shanghai government.

"When we judge a city's FDI growth, we must look at its aggregate, and more importantly, its structural growth," Hua said.

"Shanghai still needs to improve its economic structure in terms of attracting FDI," Hua said.

But although property investment has been the main driving force behind the increase in FDI, experts say investment flowing to the banking and IT outsourcing service sectors is beginning to catch up.

The rapid increase in investment can be partly illustrated in the continued hiring in banking and professional services, IT and telecommunications, healthcare and life sciences, which have higher employment expectations than other industries including manufacturing.

According to a report released by Hudson, a global leader in staffing, outsourcing and human capital solutions, 72 per cent of the overseas capital market firms based in Shanghai plan to increase jobs in the third quarter, compared to 87 per cent of healthcare and life sciences companies and 57 per cent of IT and telecommunications companies.

The banking sector reported the greatest increase in hiring expectations on last year. The number of respondents forecasting headcount growth is 72 per cent, up from 57 per cent in the third quarter last year.

Source: China Daily