Under continued expectations for an appreciated yuan, international hot money has chosen to move to China via FDI. China's labor and environmental costs have increased drastically in recent years while its exports have been on the decline.

This should have prompted China-bound FDI to drop accordingly. However, the country's FDI witnessed a big rise in 2007 after experiencing a steady increase in the previous two years. It even achieved a drastic 45.55 percent growth in the first half of last year. The astonishing FDI growth in China since 2007 ran contrary to economic logic.

The FDI-driven economic model has increasingly brought potential risks to the country's economy. Such a low value-added economic development path will contribute to the final exhaustion of the country's natural resources and labor.

China's economy is currently entering a new historical stage, in which structural adjustments obviously outweigh originally planned economic growth target. There is no doubt that the country's economic and industrial structural adjustments are to be accelerated in the following five to 10 years. With such adjustments, a change to the established FID structure is also needed.

As population plays a declining role in increasingly harsh international competition, it has become inevitable for a country to change its labor-intensive industrial development model. This makes it particularly necessary for China to strengthen capital and technology investment to grow non-agricultural populations.

Along with efforts to absorb foreign funds, the country should also take any possible measure to increase domestic enterprises' participation in the global production system and promote the homeland development of foreign-funded enterprises. This is also a common practice widely used by many other countries in their adoption of third-generation foreign-funds policies.

For instance, great efforts are taken in these countries to promote common development between transnational companies and indigenous ones and offer relentless support to the former's suppliers in host countries through information and fund support, technological upgrading and talent training.

(China Daily February 25, 2009)