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China foreign investment pattern changes as challenges grow

Published on Aug 27, 2014 5:54 AM
An employee works at a production line inside a Geely factory in Ningbo, Zhejiang province, in this May 15, 2014 file photo. -- PHOTO: REUTERS

SHANGHAI (Reuters) - China's foreign investment mix is changing, with portfolio investors buying more stocks but foreign direct investment falling to a two-year low on a slowing economy, rising business costs and anti-monopoly probes and crackdowns on foreign firms.

Foreign direct investment (FDI) in China fell in over the first seven months of 2014 compared with a year earlier, while the offshore funds flowing into mainland stocks hit the highest in more than two years last month.

A plateau in foreign investment could be a challenge for China, as it offers manufacturers an alternative source of capital to the banking system. Any shortfall is unlikely to be made up by portfolio flows, which favour more liquid stocks and are limited by quotas.

"Foreign capital coming here needs to get a lot more discriminatory," said Mr Gary Reischel, founder of venture capital firm Qiming Venture Partners in Shanghai, referring to overall investment.

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