POWER BOOM: Workers at the Xinjiang Wubei Power Sub-station inspect facilities. Xinjiang Uygur Autonomous Region has enhanced electricity generation this year to meet growing power demands outside the region (JIANG WENYAO)

Numbers of the Week

4.1%

China's registered urban unemployment rate was 4.1 percent at the end of June, with 9.08 million people registered as unemployed, said the Ministry of Human Resources and Social Security.

2.41 trillion yuan

Profits of China's industrial enterprises above the designated size—annual revenue of 20 million yuan ($3.1 million)—rose 28.7 percent year on year to 2.41 trillion yuan ($374 billion) in the first half of this year, said the National Bureau of Statistics.

TO THE POINT: China remains an attractive destination for foreign investments, despite signs that capital inflow is tapering off. China's textile manufacturers are generating handsome returns, but uncertainties still loom large. The country's funds spill red ink due to less-than-favorable stock market outcomes. The sovereign wealth fund China Investment Corp. cashes in on its expanding global presence. The Chinese search giant Baidu.com gains momentum thanks to robust traffic growth and business diversification.

Capital Destination

China has maintained its appeal to foreign investors, though capital inflow is slowing down.

In the first half of this year, the country received $60.891 billion in foreign direct investment (FDI), up 18.4 percent from a year ago, said the Ministry of Commerce (MOFCOM). Newly approved foreignfunded enterprises totaled 13,462, up 8.77 percent year on year.

In June alone, the FDI was only $12.86 billion, growing a minuscule 2.83 percent.

"Capital inflow from the United States and European Union is withering," said Yao Jian, a MOFCOM spokesman. "But China will maintain its attractiveness to foreign investors thanks to economic growth potential and booming consumer markets."

Global FDI flow has yet to recover to pre-crisis levels as investor confidence takes a hit from faltering growth in developed economies and inflation fears in developing economies, said Liang Guoyong, an economic affairs officer of the United Nations Conference on Trade and Development (UNCTAD).

Worse still, acute costs inflation has hurt the competitiveness of China's manufacturing industry, prompting some foreign enterprises to relocate to Southeast Asian nations, he said. Viet Nam, for instance, has overtaken China as the largest maker of Nike shoes.

Zhan Xiaoning, director of the investment and enterprise division of the NCTAD, downplayed the concerns.

"China will continue to be a major investment destination for most multinational corporations over the next two years," he said.

Thriving hi-tech industries and the service sector will lure more foreign investors, and the country's economic restructuring will also present new opportunities, said Zhan.

Textile Uncertainty

In the first half of this year, textile manufacturers above the designated size—annual revenues of 20 million yuan ($3.1 million)—reported combined output value of 2.4 trillion yuan ($372.1 billion), soaring 30 percent from a year ago, said the Ministry of Industry and Information Technology (MIIT).

Their added value went up 9.9 percent year on year, 2.3 percentage points slower than the same period last year.

As the world's biggest supplier of clothing and shoes, China's textile industry accounts for more than 10 percent of the country's total exports and provides millions of jobs.

"The once-fragile industry is steering a steady course of recovery," said the MIIT. "But clouds are gathering over its exports prospect due to costs inflation, weak overseas demands and the appreciation of the yuan."

Signs are emerging that Chinese textile  exporters are losing competitiveness. For example, the United States increased its imports of wool products in the first five months by 12.7 percent from the previous year. The amount from China, however, fell 5.7 percent.

More disturbing is a lack of financing as policymakers twist harder on the country's credit screws to tame inflation, said Sun Weibin, Director of Economic Research Center of China National Textile and Apparel Council.

It is imperative for manufacturers to forge ahead with product innovations and expand marketing and branding campaigns, he said.

Funds' Gloom

China's 762 funds operated by 61 fund management companies racked up combined losses of 89.4 billion yuan ($13.9 billion) in the second quarter of 2011, compared with 36 billion yuan ($5.6 billion) in the January-to-March period, say data from the Beijing-based Tianxiang Investment Consulting Co. Ltd.

The biggest losers were the 377 stock funds that suffered a combined loss of 61.2 billion yuan ($9.5 billion) in the second quarter, as the stock markets continue with a bearish run amid investor worries that more monetary tightening measures are in the pipeline. The Shanghai Composite Index tumbled 5.67 percent from April to June, after rising 4.27 percent in the first quarter.

Worse still, all 61 fund management companies were swimming in red ink in the first half of this year, said Tianxiang Investment.

"The biggest concern is inflation that may prompt policymakers to further soak up market liquidity," said Zhang Zhuo, a fund manager of Penghua Fund Management Co. Ltd. "Corporate earnings may also be negatively impacted by lackluster real estate and auto markets."

But Lorraine Tan, director of equity research for Asia at Standard & Poor's in Singapore, disagreed. She expects China's stock markets to grow 15 percent by year's end.

Policymakers may turn to a relatively loose monetary stance as consumer prices stabilize, providing a powerful boost to the stock markets, she said.

Moreover, stock valuations are becoming more attractive after several months of declines, she said.

CIC Profitable

The China Investment Corp. (CIC), the $200-billion sovereign wealth fund, reaped a bumper harvest from global investments last year.

The investment powerhouse logged a net profit of $51.56 billion in 2010, up 23.78 percent from the previous year, and more than doubling that of 2008. The return on its overseas portfolio stood unchanged at 11.7 percent, reversing losses in 2008 when the rate was negative 2.1 percent. This was the third annual financial report since it was established in September 2007.

"The world economic environment was complicated," said Lou Jiwei, Chairman of the CIC. "Commodity price increases fuelled jitters over global inflation, and the European debt crisis also cast an ominous shadow over the world's economic prospect."

In response, the CIC diversified its portfolio to minimize risks, and boosted presence in rapidly growing emerging markets, as well as real estate, infrastructure and private equity sectors, said Wang Shuilin, a CIC spokesman.

Last year, the CIC made $35.7 billion worth of new investments. Currently, its total portfolio includes: equities, 48 percent; fixed-income securities, 27 percent; alternative investments, 21 percent; cash and cash funds, 4 percent.

In May 2010, the CIC agreed to pay approximately $802 million for a 5-percent interest in the Canadian oil and natural gas company Penn West Energy Trust. The two companies also agreed to enter a joint venture to develop bitumen assets in west Canada.

Looking ahead, Lou said the company was "cautiously optimistic" about this year's investment outlook as the global economy will continue to recover but the process will be rocky.

Baidu Shines

China's largest search engine Baidu is faring well, drawing strength from solid traffic growth and diversified businesses.

The company generated 1.63 billion yuan ($253.2 million) in net profits in the second quarter, skyrocketing 95 percent from a year earlier, while sales revenues stood at 3.42 billion yuan ($529.5 million), up 78.4 percent year on year.

Baidu currently controls 75.8 percent of China's search engine market, followed by Google's 19 percent, according to data from the Beijing-based research firm Analysys International. Baidu is benefiting from increasing Internet advertising spending from traditional companies and fast-growing online shopping websites. Its revenue from online marketing rose 78.4 percent to 3.41 billion yuan ($529.3 million) for the Aprilto- June period.

"We'll continue to pick up momentum from this trend for years as more companies realize the best way to do e-commerce is through Baidu," said Robin Li, CEO of Baidu.

While it continues to dominate the search market, Baidu is diversifying into e-commerce, online videos and social networking.

Baidu plans to launch search services for hotel bookings as part of its partnership with online flight ticket search site Qunar.com, said Li.

He said Baidu expects to gain users by adding new products such as a Web browser and social networking services.

In June, Baidu invested $306 million in Qunar to become its largest institutional shareholder as demand rose for online booking service for air tickets and hotels.