China favourite for investors as foreign capital pours in

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The Independent Online
FOREIGN capital flooding into China could reach dollars 27bn this year, making the country the biggest recipient of foreign direct investment in the developing world, the World Bank said yesterday.

The bulk of the inflow, more than double 1991 levels, comprises foreign direct and other private investment as well as bond issues. In 1992, total capital flows into China amounted to dollars 24bn, the Bank said in its latest edition of World Debt Tables. China, also the largest foreign investor abroad among developing countries, was the only low-income developing country not to experience stagnating net capital inflows.

This broad stagnation is one of the main trends in the external financial position of developing countries in the past few years, owing to slow growth in official aid and lack of access to world capital markets.

This year official aid to the least developing countries (LDCs)is forecast to reach dollars 64bn, recovering from the 9 per cent fall in 1992.

The bank says that severely indebted low- income countries face, in addition, a large overhang of official debt. Despite the benefits of increasingly available debt reduction schemes, the need to stretch out debt repayments and capitalise interest boosted official debt levels to dollars 204bn in 1992, triple the nominal value of the early 1980s.

Although East Asia and the Pacific are expected to experience the strongest growth in capital inflows in 1993, much of the increase will go to China, the Bank believes.

The external finances of LDCs were also marked by a remarkable turnaround in private capital flows, as flight capital abated and inflows mushroomed, largely to middle- income countries like those in Latin America. The bank expects total private capital inflows to rise 13 per cent this year, hitting a record dollars 177bn against dollars 157bn in 1992.

For the developing world as a whole, substantial inflows of long-term debt, IMF credits and short-term credits have outweighed debt reduction and interest capitalisation schemes.