BEIJING, Sept. 7 -- The country will remain a magnet for foreign investors in the coming years despite higher wage bills and competition from other emerging economies, officials and researchers said yesterday.

"Rising labour costs and international competition will not affect its position as the biggest recipient of foreign direct investment (FDI) among developing countries," said Kong Linglong, a senior official of the National Development and Reform Commission (NDRC).

The country currently ranks second only to the United States as a FDI recipient, said Kong, who is the director of the commission's Department of Foreign Capital Utilization.

Kong's view is echoed by Lin Yueqin, an economic researcher at the Chinese Academy of Social Sciences, who said the vast market, strong purchasing power, improved investment environment and an opening-up services sector combine to ensure that China continues to be attractive for foreign capital.

A study released yesterday forecast that China would maintain its pre-eminent status as the developing world's top investment destination in the coming years with neighbouring India markedly behind.

China is forecast to attract US$80 billion in foreign investment in 2010, while the figure for India is tipped to be US$14.3 billion, according to "World Investment Prospects to 2010: Boom or Backlash," by the Economist Intelligence Unit and Columbia University's Program on International Investment.

According to the Ministry of Commerce, China absorbed foreign investment of around US$60.3 billion last year.

Kong said China is trying to optimize its FDI structure as the nation shifts its policy of attracting foreign businesses from "quantity" to "quality."

"Despite that, the total volume of China's FDI will still be the highest among developing countries," he added.

Last year, the average salary for workers increased 14.1 per cent compared with 2004. This year, many local governments are raising the minimum wages of workers, which vary from place to place.

The government of Shanghai, where the average salary is the highest in the country, has decided to raise the minimum wage by about 9 per cent. Major cities such as Beijing, Guangzhou, Tianjin and Dalian, where many foreign companies have their China bases, have set double-digit increases in the minimum wage.

The moves are in line with a central government policy of safeguarding the interests of the poor, but are considered by some as a disincentive for foreign companies seeking inexpensive workers.

"This might influence labour-intensive sectors such as manufacturing, but will have little impact on high-end industries such as financial services, which will be one of the major sources of FDI," Lin said.

Another major issue that worries foreign investors is the country mulling a unified corporate income tax.

China has a preferential tax rate for foreign firms, which pay 15 per cent compared with the 33 per cent paid by domestic companies.

Some capital might be diverted to other countries because of the tax increase, but big or technology-oriented enterprises will stay put because of attractive returns, Lin said.

China has surpassed the stage where it did not discriminate on capital selection, Lin said. "By raising the threshold, the country can optimize its FDI structure."

(Source: China Daily)