Ballooning forex reserves have kept pumping liquidity into the monetary market, making it more difficult for the central government to advance its macro control. Moreover, the long-term cost of keeping such a huge forex reserve has also raised public concerns.
Under such circumstances, the current slowdown in the country's pace of drawing in FDI can more or less ease the mounting pressure that soaring forex reserves put on policy-makers. The central authorities are tightening credit supply to engineer a slowdown of the national economy.
More important, it offers a chance to rethink the country's decades-old FDI strategy.
During most of the past quarter century, governments at all levels in the country have tried to invite as much foreign investment as possible. As a developing country, China used to face serious shortages of capital, management and technologies associated with FDI. The combination of a huge inflow of foreign investment and China's low labour costs have enabled the country's rise as a world manufacturing centre.
But China has increasingly realized that the burden extensive growth puts on its environment and resources is unbearable. It is keen to upgrade its industries to pursue sustainable economic growth.
To that end, the country should make more efforts to attract high-quality FDI aimed at high value-added and knowledge-intensive production.
The still huge inflow of FDI shows that China remains very attractive to market-seeking investors as its economy develops.
Being selective about the quality of foreign investment might cost the country some growth in FDI. But in the long run, it pays to focus more on attracting those investments that can most propel the transformation of the country's growth pattern.
