About half of the Japanese companies in Hong Kong have no plans to increase their investment in the next three years in spite of improved market sentiment, a recent survey shows. Of the 380 companies in the survey, 96 per cent considered the business environment favourable - an increase of 5 per cent from last year and a 25 per cent leap from 1998. However, 48 per cent had no plans to beef up investment in the next three years. Hiroshi Ito, president of the Hong Kong Japanese Chamber of Commerce and Industry, said it indicated a wait-and-see approach with regard to investment in the short term. 'I think companies are taking a cautious approach before China's expected entry to the World Trade Organisation,' Mr Ito said. 'But I believe that in the long term, the prospects [in Hong Kong] are good.' The survey was conducted in September and October by the Hong Kong Japanese Chamber of Commerce and Industry, which has 672 members. While about half of the respondents said they would not top up their investment, 62 per cent said the operations of their Hong Kong offices would remain unchanged, while 27 per cent would enhance these operations. A laissez-faire economic policy, a good geographical location and low corporate tax rates were the main attractions for companies to conduct business in Hong Kong, the survey said. But the respondents expressed concern about high property prices and labour costs, English standards and the environment. Mr Ito said although high commercial rents could deter foreign investment, Hong Kong would remain attractive to Japanese corporations. 'Many small and medium-sized enterprises [SMEs] in Japan haven't got the experience of investing in this part of the world and I think there is a lot of potential for these companies to come to Hong Kong,' he said. Nearly half expected China's WTO entry to have a positive impact on Hong Kong, while 34 per cent said the economy would benefit only in the short term. Mr Ito said the SAR could act as the gateway to China for many Japanese companies. 'Some Japanese companies, especially the SMEs, may not know how to tap into the mainland market directly,' he said. 'So they could partner with Hong Kong companies, who could be their navigator to southern China.' Last year, Japanese investment in Hong Kong was US$951 million. That was a 61.46 per cent increase from a year earlier. According to the Japanese Chamber of Commerce and Industry, investment in the SAR between April and September this year stood at US$303 million.