TO THE POINT: China has maintained its attractiveness to foreign investors with foreign direct investments leaping 17.4 percent last year. Meanwhile, domestic companies are rushing to extend their global reach, boosting outbound direct investment to a record high. Despite gloomy stock markets, China has taken a leading position among global IPO markets. The logistics industry picks up momentum, though problems remain. Home appliance giant Haier has fared well, with profits soaring 78 percent last year.

By HU YUE

FDI Holding Up

For investors across the globe, China remains a favorite destination.

The country received a record $105.74 billion in foreign direct investment (FDI) in 2010 into its non-financial sectors, rising 17.4 percent from the previous year, said the Ministry of Commerce (MOFCOM). A total of 27,406 foreign-funded enterprises were approved last year, up 16.9 percent year on year.

Meanwhile, the structure of the FDI continues to improve. The central and western regions accounted for 15 percent of FDI inflows last year, up 1.2 percentage points from a year earlier. In addition, 46.1 percent of the foreign capital went to the service sector, compared with 42.1 percent in 2009.

China is continuously optimizing its investment environment, enhancing appeal to foreign investors, said the ministry.

In April 2010, the State Council issued a string of new rules, allowing local governments a larger say in approving FDI projects and encouraging foreign capital into hi-tech, modern service, and new energy industries.

The American Chamber of Commerce in Shanghai said in a recent report 87 percent of U.S. companies in China reported revenue growth last year, surging from 47 percent in 2009.

Finding enough qualified staff was the biggest business challenge, and competition is picking up not only between U.S. and other foreign companies but between U.S. and Chinese companies.

Optimism regarding the China market continued. About nine out of 10 U.S. companies in China forecast a revenue increase for 2011, said the report.

Venturing Offshore

With ambitions to make global names for themselves, Chinese companies are looking to expand their footprints beyond China's borders.

China's outbound direct investment (ODI) in non-financial sectors hit $59 billion last year, up 36.3 percent from 2009, said the MOFCOM.

The commercial service sector has been the most coveted area for Chinese investment, followed by the mining and manufacturing industry.

The investing spree comes amid the unprecedented global recession that has forced multinationals to ease back on expansions. Global flows of foreign direct investment grew a minuscule 0.7 percent to around $1.12 trillion in 2010, said the United Nations Conference on Trade and Development.

Meanwhile, mergers and acquisitions became a convenient route for China to step onto the world stage. The MOFCOM said Chinese companies were responsible for $23.8 billion worth of overseas merger and acquisition deals last year, accounting for 40.3 percent of the total ODI.

Apart from strong interest in natural resources, Chinese buyers are increasingly looking to purchase technological know-how and learn cross-cultural experiences, said Xing Houyuan, Director of the Research Center for Overseas Investments under the Chinese Academy of International Trade and Economic Cooperation, a think-tank affiliated to the MOFCOM.

IPO Rush

China maintained its leading position in global IPO markets in 2010, despite stock volatility, said the international accounting firm PricewaterhouseCoopers (PwC), in a recent report.

The Shanghai and Shenzhen stock exchanges witnessed 349 IPOs last year, raising a combined 478.3 billion yuan ($72.7 billion) last year, an increase of 155 percent year on year.

Small and medium-sized enterprises (SMEs) picked up momentum—the Shenzhen SME board attracted 204 IPOs, which raised 202.7 billion yuan ($30.8 billion). The growth enterprise board ChiNext, also boomed with 95.4 billion yuan ($14.5 billion) raised via 117 new listings.

It showed that the development of Chinese SMEs has entered a growth boom, promising to become the main driving force for capital markets in the future, said Frank Lyn, PwC China markets leader.

In addition, information technology and telecom companies accounted for 35 percent of IPOs on the ChiNext. It seems that capital resources have been weighted in favor of growth and innovation-based enterprises, said the report.

However, due to the potential lack of major IPOs in 2011, PwC forecasts that listing exercises this year may not raise funds as large as those in 2010.

However, due to the low probability of a major IPO in the near term, PwC expected new listings to drop to 320 in 2011, raising around 400 billion yuan ($60.8 billion).

Logistics Boom

China's logistics industry—combining transport, storage, freight agencies and express delivery—picked up momentum last year.

The output value of the industry added up to 2.7 trillion yuan ($410.3 billion) in 2010, soaring 16.7 percent from a year ago and more than doubling that of 2005, said the China Federation of Logistics and Purchasing (CFLP). This represented a remarkable turnaround from two years ago when many logistics companies struggled to make ends meet, bearing the brunt from a slowing economy.

From warehouse management to home delivery, the logistics industry provides efficient connections between each link of the industrial supply chain. The sector accounted for 7 percent of China's GDP in 2010 and 16 percent of the service industry.

"But the industry still has a long way to go toward substantial competitiveness," said He Liming, Director of the CFLP.

Congestion bottlenecks, together with soaring labor and land costs, have forced up the logistics expenses in the country, he said. Logistics costs were 18 percent of GDP, compared with around 10 percent in developed countries.

The prices of gasoline and diesel, which account for almost 30 percent of logistics costs, were raised three times last year by the National Development and Reform Commission.

Worse still, the middle and western areas lag far behind the eastern counterparts in terms of infrastructure and service quality, said He.

In early 2009 the government started a national program to revitalize the logistics industry, but many of the favorable policies were not well implemented, he said.

Haier Cashes In

Haier Group, China's leading household appliance giant, reaped juicy returns last year, gaining steam from vibrant domestic demands.

The Qingdao-headquartered company said it generated 6.2 billion yuan ($942.2 million) in profits last year, an increase of 78 percent from the previous year. Its sales revenues stood at 135.7 billion yuan ($20.6 billion), up 9 percent from 2009.

The bright performance is attributable to the group's successful transition of business model and product innovations, said Du Fangyuan, a spokesman of Haier.

The company in 2008 initiated a business shake-up to focus more on customer services and boost operational efficiency.

Meanwhile, it has gained a solid market foothold overseas. Its exports and overseas sales accounted for 26 percent of total revenues last year, said Du.

In addition, Haier led global appliance makers, winning 12.6 percent, 9.1 percent and 14.8 percent of the refrigeration appliances, home laundry and electrical wine cooler markets in 2010, respectively, said Euromonitor International, a global business intelligence provider.

Domestically, Haier will continue to benefit from the government subsidies for farmers to buy appliances, said Zhu Zheng, an analyst at the Ping An Securities Co. Ltd.

This year, the massive construction of affordable houses will also help shore up demands for appliances, he said.