In an annual survey conducted by the Japan Bank for International Cooperation, India for the first time topped the list as the most attractive destination, overtaking China.
The survey, which is in vogue since 1992, elicits the views of Japanese companies which have invariably preferred China over India and gave the fillip to Shanghai that rose to prominence since the mid-90s.
The new ranking was made in the 22nd survey carried out by JBIC in 2010, said a release on Thursday.
The reason for China lagging behind was attributed to increasing labor cost and recent anti-Japan protests in China in the wake of the boat incident in the Senkaku islands in September, and China's move to delay exports of rare earth minerals.
Japanese foreign investment and companies are increasingly turning their attention to such (emerging) markets as India and Vietnam, JBIC economist Toshiharu Mimura told Kyodo News agency.
The survey conducted in the summer of 2010 shows that 74.9 percent of the 605 Japanese companies selected India as their investment destination over the next 10 years, while 71.7 percent chose China. Last year, China was in the first position followed by India.
But in short term say over next three years, China still tops the list with 77.3 percent of the respondents being positive with India at 60.5 percent, Vietnam at 32.2 per cent, Thailand at 26.2 per cent, and Brazil at 24.6 per cent.
The survey reflects increasing aversion among the Japanese manufacturers to invest in China due to some frequent strikes last year in Chinese auto manufacturing units followed by bitter diplomatic row between the two nations over the disputed Senkaku islands in the East China Sea which both claim.