Despite concerns that higher corporate income tax rates might affect the inflow, China's foreign direct investment (FDI) increased over 10 percent year-on-year in the first four months of 2007.

China drew $20.4 billion in FDI from January to April, up 10.2 percent from a year earlier, according to Ministry of Commerce spokesman Wang Xinpei.

Foreign investment in the service sector is expected to maintain robust growth while investment in manufacturing is likely to decrease, said Shen Danyang, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Ministry of Commerce.

"With five years (the grace period) elapsing since China entered the World Trade Organization, the service industry will be further opened up to foreign investors. New FDI will largely concentrate on sectors such as transportation, computer services, distribution, tourism, architecture and financial services," he said.

The FDI inflow grew rapidly till 2005, but has now entered a new phase of steady rises, Shen said. But the inflow, he maintained, will remain high this year.

He said some drop in FDI is not bad news because the investment structure will be optimized in the process.

Since late last year, there have been rumors of the average corporate income tax going up for foreign companies to 25 percent from 15 - a measure finally passed by the National People's Congress this year.

China is now encouraging high value-added manufacturing sectors and service industries while turning down foreign investments in high-pollution and low-efficiency ventures.

The government is also encouraging foreign investments in western China.

In April alone, actual FDI reached $4.47 billion, 5.5 percent more than in the previous year.

The ministry approved 12,349 foreign-invested enterprises in the past four months, down 2.29 percent from the previous year. It did not disclose the amount of contracted investment of the FDI agreements, as opposed to the realized ones.

For the whole of 2006, China drew a record $63 billion in non-financial FDI, up from $60.3 billion in 2005 and $60.6 billion in 2004.

The FDI figure released by the ministry excludes investments in the financial sector.