China will encourage foreigners toinvest more in service sector and high-tech companies this year while strictly restricting overseas investment in real estate projects, according to guidelines on foreign investment recently issued by the Ministry of Commerce for 2007.

The administrative rules for the current year say local governments and related departments should pay more attention to the quality of use of foreign investment.

According to the guidelines, foreign investment should be channeled into high-tech, modern service and high-end manufacturing sectors and into research and development, energy-efficient and environmental-friendly projects.

This year China will continue to channel foreign investment into technical upgrading projects for traditional industries and encourage transnational companies to establish regional headquarters and launch procurement, distribution, operation and training centers on the Chinese mainland.

The guidelines require that overseas resources should be utilized to expand domestic capital markets and foreigners' strategic investment in Chinese listed companies should be regulated. Foreign investors' cooperation with peers from China's non-state sector will be facilitated.

Meanwhile, the guidelines stress that foreign investment shouldbe strictly restricted in real estate sector and low-standard projects with high energy consumption and serious pollution.

The guidelines also say that healthy development of mergers andacquisitions by foreign investors should be promoted, and that monopoly-targeted and malicious takeovers be prevented so as to maintain the nation's control over strategic sectors and ensure national economic security.

According to the Ministry of Commerce, last year China approvedestablishment of 41,485 overseas-funded enterprises, down 5.76 percent from the previous year, and used 69.5 billion U.S. dollarsin foreign capital, down 4.06 percent.

The ministry said under China's macro economic control scheme, no foreign investment projects in the overheated steel, cement andelectrolysed aluminum sectors have been approved since 2005.

Meanwhile, more foreign capital flowed to the high-tech telecomequipment manufacturing and computer production sectors last year.The telecom equipment sector recorded a 61.4 percent growth in foreign capital actually used, while the computer sector, a 48.63 percent growth.

The ministry said foreign-funded firms performed well in China and contributed significantly to the nation's economy.

In the first 11 months of last year, they realized 937.5 billion U.S. dollars in foreign trade, up 25.5 percent. The volume,accounting for 58 percent of the nation's total, included 509.6 billion U.S. dollars in export value, up 27.9 percent.