''Other areas which would be helpful would be an improvement in the infrastructure and the further opening up of the domestic market.'' Meanwhile, 3.3 per cent of the respondents thought the Government should combat corruption.

Of the 793 respondents, 57.4 per cent had invested in China and another 11 per cent planned to do so.

The other 31.7 per cent said they did not have or plan any mainland investment.

The average investment was $18.2 million and employment, 786 people.

More than 63 per cent made a profit from their China ventures, and 27 per cent regarded them as potentially profitable. Only 2.64 per cent said their interests were unprofitable.

About 65.2 per cent intended to expand their China operations and 16.8 per cent were undecided. The rest said they would not increase their involvement.

''Although Hong Kong interests are gradually spreading beyond the Pearl River delta region, Guangdong remains the most attractive investment location for nearly 90 per cent of our members,'' said Mrs Davies.

''The Yangtze region is still far behind in attracting investment from our members. However, the area is getting more attention especially because of its enormous possibilities for domestic sales.'' On average, the Government allows foreign joint ventures to sell 36 per cent of their products within China. In the south, the figure is 30 per cent, in the Yangtze, 58 per cent.

''The possibilities for our members to sell to the enormous domestic market are proving to be a major attraction for many of our members,'' said Mrs Davies.

Although only a few Chinese cities were open to retail investment from overseas, 54.2 per cent of the respondents said huge market potential was an important factor.

One-third said that government restrictions, including the limits on the amount of production permitted to be sold locally, lengthy application periods and high tax rates were a major hindrance to developing the Chinese retail market.

Other factors such as insufficient market information (encountered by 14.5 per cent), lack of wholesale and retail outlets (13.2 per cent), and inadequate promotion channels (9.5 per cent) were also cited.

Production remained the main area of investment for manufacturers, although 6.4 per cent had diversified into property and 4.2 per cent into other service industries. A few had invested in the local stock markets.

The findings indicate that the proportion of Chinese investment varied across sectors, with labour-intensive industries having a higher percentage of total capital in China.

This shows that China's abundant supply of labour is still a major attraction to the territory's manufacturers, the report says.

The five industries with the highest China investment rates were leather and rubber (84.2 per cent), electronics (77.8 per cent), watch and clock makers (71.4 per cent), electrical and optical products (72.7 per cent) and toys (68.9 per cent).

The labour-intensive textile and garment industries, however, had investment rates of just 30.3 per cent and 50.6 per cent respectively because of the country-of-origin regulations under the Multi-Fibre Arrangement.

Industries needing more sophisticated production technology and less cheap labour were found to have a lower proportion of their investment in China.