Multinational corporations are diversifying their new investments away from "the world's factory", China, in response to rapidly rising labour costs, shaky legal protections and fear of anti-Japanese sentiment.
While China remains by far the favourite direct investment destination, India, Vietnam and other South-East Asian countries are gaining ground.
Foreign direct investment from the European Union into China fell 29.4 per cent last year, Japanese investment fell 24.6 per cent and US investment fell 12.8 per cent, says the website of the Department for Foreign Investment Administration, part of China's Ministry of Commerce.
The shift partly reflects Chinese government policy, which now seeks strategic investors rather than just capital, but also reflects rising concerns among foreign governments and CEOs.
Atsuo Kuroda, who heads the China division of Japan's Ministry of Economy, Trade and Industry, told the Herald that China's advantage over southern and South-East Asia was being eroded by rapidly rising wages, a tough new labour law and legal problems involving intellectual property and arbitrary local government decisions.
"For high-tech industries it's a risk investing in China because partner companies can easily steal their technology and set up a factory next door," Mr Kuroda said.
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