Mergers and acquisitions (M&A) should become the main methods of absorbing FDI, according to CAITEC's 2007 Multinational Corporation Research Report.

In January, Ministry of Commerce (MOFCOM) approved 3,370 foreign-invested enterprises, up 10.71 percent from a year ago. FDI absorbed in January totaled $5.175 billion, growing 13.86 percent year on year, according to MOFCOM statistics.

MOFCOM expects quality and efficiency of FDI will be improved so that China can become one of world's manufacturing centers of high value-added products. The service industry should be an area where FDI will accelerate inflow. FDI to less-developed central and western China is also being promoted.

Interest Rates Stable-For Now

CPI slowed down its growth in January.

Experts say the possibility of raising interest rates in the short term should be ruled out.

CPI rose 2.2 percent in January over the same month last year, 0.6 percentage points lower than that of December, according to the National Bureau of Statistics. However, the index is still 0.3 percentage points higher than that in January 2006, and 0.7 percentage points higher than that of 2006. The soaring grain price is driving CPI growth (see graph).

When the CPI growth rate reached 2.8 percent last December, there was a lot of anticipation over an interest rate rise.

However, the CPI growth rate in January and moderate growth in money supply seem to have alleviated the pressure of raising interest rates. Statistics from the People's Bank of China (PBC) show the balance of M2 stood at 35.2 trillion yuan by the end of January, growing 15.9 percent, 1 percentage point lower than that at the end of last December, and 3.3 percentage points lower than the same month last year.

Yi Gang, Assistant Governor of the PBC, said that the level of China's interest rates and other economic indexes are appropriate. Whether it's necessary to change them still needs observation.

Yi added that the central bank will pay close attention to various price indexes including CPI, and observe the overall economic situation pertaining to investment and price fluctuation, and then decide whether to change or not.

Raising interest rates not only depends on inflation, but also the growth speed of fixed assets investment. Upon reviewing the past several macro-control measures, investment appears to hold a more important position than inflation. During the second half of 2006, growth of fixed assets investment continued the downtrend, dropping to 13.8 percent in December.

One expert said in the short term, there is no possibility of raising interest rates. But the central bank may continue to use other monetary policies like raising the deposit reserve ratio.