THE fact that Japanese investments in China declined sharply in 2013 would, and should, be a cause for concern, especially for policymakers in Beijing. And the fact that Japan's investments in Asean rose at the same time suggests that Japan Inc is still keen to invest in the region - but just not as much in China as before.

The latest numbers from the Japan External Trade Organisation (Jetro) show that Japanese investments going to China dropped 18 per cent last year, while those going to Asean almost doubled. A survey by Jetro of Japanese companies also indicates that China fell from first to fourth place as a medium-term investment destination, while Indonesia took the top spot.

There are, to be sure, plausible economic reasons for the waning of Japanese companies' interest in China. First, China's economic growth, while still respectable at 7.7 per cent last year, is slowing. Industrial production has been declining in the face of severe overcapacity in several capital goods industries (where Japanese manufacturers and exporters are strong). Chinese wage costs are also no longer as low as they used to be - they are on a par with those in Thailand and well above those in most Asean countries (except Singapore and Malaysia) as well as India. Wage growth in China's coastal provinces, where a lot of Japanese investments are concentrated, have been far outpacing increases in productivity - a clear incentive for manufacturers to shift at least their labour-intensive operations to cheaper shores. For higher-value products, weak enforcement of intellectual property rights in China is also viewed as a risk.