FOREIGN investment in China rose in September for the second straight month - fresh evidence that overseas investors are betting on the country's economic recovery.

Foreign direct investment expanded 18.9 percent from a year earlier to US$7.9 billion last month, the Ministry of Commerce said yesterday.

It followed a turnaround in August, when foreign investment rose 7 percent to post the first increase in 11 months.

"Market sentiment strengthened alongside growing evidence of China's economic improvement," said commerce ministry spokesman Yao Jian. "More overseas enterprises are expected to join in the development of China against that backdrop."

Industry watchers seemed to share that view.

"The foreign investment growth indicates the external environment is improving as companies regain the capital to invest," said Li Wei, a Standard Chartered Bank economist in Shanghai. "It also shows that overseas investors are bullish on China's economic recovery."

Li said there is also a possibility that speculative "hot money" is returning to China to capitalize on the nation's early recovery.

Foreign direct investment measures the overseas money flow into China, excluding funds invested in financial markets.

The country remains a top investment magnet, but double-digit growth halted in late 2007 as foreign firms cut back in the face of the global financial crisis. Foreign investment for the first nine months of this year totaled US$63.8 billion, a 14 percent decline from a year earlier.

But signs of better times ahead are plentiful.

China's economic performance beat expectations in several key areas in September, laying the foundation for a strong recovery.

Growth signs

China's new yuan lending rose 517 billion yuan (US$76 billion) last month, well above the market estimate of 440 billion yuan and the average for the past two months of about 390 billion yuan.

Growth in M2, the broad measure of money supply, accelerated to 29.3 percent last month, up from 28.5 percent in August. Both figures supported the view that China is on track for recovery based on its relaxed monetary policy.

Even exports, the sector hardest hit by the crisis, showed improvement. September exports fell 15.2 percent year on year to US$115.9 billion, the smallest drop this year.

"Going forward, we do not expect significant monetary policy changes for the remainder of this year," said Ma Jun, Deutsche Bank's chief economist in China.

Ma said increases in interest rates and the appreciation of the yuan may start in the second half of 2010.