The Political and Economic Risk Consultancy (PERC) said Southeast Asia should not be written off the investment map as it has advantages over China, but it must "do a lot more" to promote itself.

The findings were based on the opinions of 1000 expatriate executives in 12 Asian economies surveyed during the September quarter to rate their places of residence in terms of hospitability to foreign direct investments (FDIs).

The ratings are based on a slew of variables, including the ease of establishing a company, levelness of the playing field, transparency of the licensing process, immigration policies and government responsiveness to investor concerns.

On a scale of zero to 10 with zero the best possible grade, Hong Kong topped the survey with an average grade of 2.27, followed by Singapore with

Taiwan was in third place with 4.16. Malaysia, with a score of 4.21, beat Japan which received 5.00. South Korea 5.21 was in sixth place, trailed by Thailand at 5.62 and the Philippines 5.76.

China was in ninth place and at 6.31, preceding India with 6.40.

Indonesia and Vietnam rounded out the last two places with grades of 7.0 and 7.75, respectively.

"China might not rank very high in the criteria for which we surveyed, but that is not deterring foreign investors," the Hong Kong-based PERC said.

"Instead, they are more concerned with understanding the real risks in this market, how the door is opening to them, and the best ways they can maintain control over their operations," it said.

But while China remains a huge investment magnet, PERC said the level of FDI inflow into the communist country and its special administrative region Hong Kong, as well as in Northeast Asia in general, were inflated.

The World Investment Report published by the United Nations said total FDI into China and Hong Kong reached 105.2 billion dollars in 2002, or 76.6 percent of the inflow into South, Southeast and East Asia.

But PERC said the official figure includes a large amount of investment by subsidiaries of Chinese companies, which in some cases are located in Hong Kong or in tax havens like the British Virgin Islands.

Slashing these inclusions should bring the actual FDI inflow into China and Hong Kong closer to 36 billion dollars, PERC said.

"By dressing themselves up as foreign investors, the Chinese companies have been able to take advantage of tax, foreign exchange and other incentives that would not have been available had they been classified as domestic investments," it said.

Some capital classified as FDIs were actually foreign borrowings and by inflating the FDI figures, China risked "feeling overly secure" and "underestimating its actual exposure to foreign debt," PERC warned.

Saying that it was "very bullish" on China as it offers huge investment opportunities, PERC said there was also a need to balance the reports of spectacular dollar inflows.

"What is much less publicised ... is the track record of profitability for companies that have already gone in," it said.

"There are a lot of horror stories with respect to joint ventures with mainland state-owned enterprises," it said. Foreign firms which have gone into China with 100 percent ownership or controlling interests fared better.

Southeast Asia offers certain advantages over China and should not be counted out in the investment race, PERC said, citing Singapore, Indonesia, Malaysia and Thailand.

FDIs to Vietnam expected to increase sharply, thanks to the trade agreement Hanoi recently agreed with the United States.

"The individual countries of the region, however, will have to do a lot more to distinguish themselves in the eyes of foreign investors than they have in the past," it said.

                                                            Home