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Flight of capital denied
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Foreign investors remain confident on China and reports in some sections of the media about a large number of enterprises leaving and factories being closed down in the Pearl River Delta are untrue, say trade officials.

"The number of foreign-invested enterprises in Guangdong is still increasing steadily," said a trade official from the South Chinese province.

In 2007, 244 foreign-invested enterprises moved out of Guangdong, and 28 made plans to leave, according to the trade department of the provincial government. The same year, the province approved over 9,000 foreign-invested projects with a contract value of nearly $40 billion. The foreign direct investment the province drew that year was $17.1 billion, up 18 percent year-on-year.

The total number of registered foreign enterprises was 66,789, 6.62 percent more than the previous year, according to the department of foreign trade and economic cooperation of Guangdong province.

The trade official, who did not want to be named, however, said some enterprises are indeed leaving the province. Over 70 percent of these are small and medium-sized companies with investment of under $1 million, and over 60 percent of them are in the labor-intensive manufacturing business such as clothes, shoes, plastic and toys.

Adjustments in economic policies along with rising costs have caused enterprises with narrow profit margins to close down, the official said.

In a move to cut the huge trade surplus, which was up by nearly 50 percent to $262 billion in 2007, the government has, since the first half of last year, cut export tax rebates in some manufacturing sectors. Rising labor costs have also added to the enterprises' woes.

The appreciating yuan, which went up by 6.9 percent in 2006, put manufacturing enterprises in the region - most of which are at the lowest end of the global manufacturing value chain - in an even more difficult position.

The local government has also closed some highly polluting and energy-intensive enterprises to protect the environment and upgrade local industry.

"It is normal for some less competitive enterprises to move," said the trade official, who added the province needs to move out some low value-added, labor-intensive enterprises, while encouraging more high-end manufacturing and modern service enterprises to move in.

"If some companies move to other parts of the world, that's only part of their global strategy for diversification and has nothing to do with their policies in China," said Brenda Lei Foster, president of the American Chamber of Commerce in Shanghai.

"Costs are an issue but that's not what is driving companies out," Foster said.

(China Daily, February 26, 2008)

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