| Abstract | Mainland China attracted enormous capital inflows in the 1990s in the form of foreign direct investment, which not only boosted its balance of payments surpluses but also contributed greatly to the country's modernisation. Conventional wisdom queries the desirability of relying on capital inflows to sustain external balances. However, imbalances in the current account would not be a major concern as long as mainland China can preserve a favourable investment environment. The Mainland's forthcoming World Trade Organization (WTO) entry would pose new challenges in managing capital flows, with anticipated increased demand for liberalising its capital account. Yet, the Mainland's huge domestic market which offers great potential to foreign investors would continue to attract foreign investment, particularly with the gradual relaxation on foreign participation in many services industries. |
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