Way to gold

Although no figures are immediately available on general overseas business performance records in Shanghai, officials with the city's foreign investment watchdog revealed nearly half of the foreign investment projects were running at a deficit in the city.

Xia's commission found the major group of money-losing enterprises was in property, textiles, food and other material processing businesses. Foreign investment in the city's pillar industries and high-tech sectors including automobiles, IT, consumer products and electronics, was in good shape.

A breakdown shows big projects with investment of $10 million are the most resilient, with only 10 per cent operating at a deficit, while the main losers are medium-sized and small companies, especially small ones.

With more and more overseas investors coming here to look for gold, the municipal government recently set up the Shanghai Foreign Investment Development Board, a special office to serve overseas investors with information updates on the city's investment policy shifts among other subjects.

It is hoped that the centre will be a good guide for foreign investors and help obviate blind investment.

Shanghai has attracted 254 of the top 500 global industrial giants, including GM, GE, Volkswagen, HP,Philips, Sony, Lucent, IBM, Intel, to operate and more are expected to come.

A recent poll of general managers of 200 foreign-funded businesses across China found 75 per cent ranked Shanghai as the top choice for overseas investment.

Referring to the loss-making enterprises, Xia said the situation wasn't as disappointing as indicated by the figures and the reasons were diversified.

"It should be made clear that it's a normal occurrence for as many as half of those which are currently making losses, start-ups included, to lose money," he said.

For a new investment, it takes a period of time to recoup costs and make a profit. The break-even point is determined by their capability to run at a scale that can allow mass production.

Xia also said some foreign businesses didn't report their actual performance so as to enjoy some favourable policies for investment.

Shanghai regulations on foreign investment require an overseas-funded project pay tax when it begins to make a profit. Before the profit period, the government affords it a slew of incentives like tax holidays.

"Only 12.5 per cent of overseas-funded business are, in real terms, hit with the losses, and some of those will have to drop out of the market," he said.

Blind investment in products with high prices but little appeal to local tastes has been the main pitfall, said Lu Deming, an economist with Fudan University who is tracking the city's foreign investment.

Wrong production location was another factor, Lu said.

Shanghai Star