China losing out to India in attracting foreign capital investment

Lately there have been indications that China is losing out to India in attracting foreign capital. The Chinese Ministry of Commerce has reported that foreign direct investment (FDI) for the first five months of 2005 fell year on year for the first time in five years. A number of reasons have been cited for this, including a global shift in investment from manufacturing toward the service sector; structural faults in China's stock market, banks, state-owned companies and legal infrastructure; the Chinese government's attempt to prevent the economy from overheating; and a series of geopolitical and economic frictions between China and some of its major trading partners. In the medium term, China is likely to bounce back with improvements in its legal infrastructure and English-language skills. However, in the longer run, India may outdo China, given India's more sustainable development model, and the geopolitical and security tensions between China and its major trading and investment partners

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