The East Asian giant's accession last year to the WTO will force nations throughout the region to drastically liberalize their economies if they want to stay competitive.
"The emergence of China as most favored area for foreign direct investment is the biggest threat to Asia," said Richard Koo (辜朝明), chief economist at Nomura Securities in Tokyo.
"Why should a Japanese company invest in Thailand if it can get a better job done in China?"
Economists say Japan still has plenty of cash to throw around overseas.
According to UNCTAD, the ratio of Japanese FDI to the size of its economy in 2000 was 5.7 percent. That's less than half of the 13 percent for the USand much less than Britain's 49.8 percent.
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