JAPANESE businessmen are holding back on new investment in China due to the mainland's austerity programme, says Mikio Mori, director-general of the Japan External Trade Organisation (JETRO). Mr Mori said yesterday that Japanese companies generally felt China's macro-economic control was a good policy but they were concerned about its overall effect. ''Some Japanese companies would like to wait and see at the moment as to whether the policy will be successful,'' he said. Those already represented in China were not too anxious about their investments as these were mostly in labour-intensive production operations, he said. Despite the concerns, Mr Mori said there was no sign of a slowdown in Japanese investment in China. He said Japanese businessmen still regarded China as a major Asian production base with cheap labour. According to Mr Mori, China is the most popular country for Japanese firms investing abroad or wishing to do so. He said about 30 per cent of Japanese companies with overseas investments picked China as their destination in Asia. Japan's investment in China has increased rapidly in the past few years. It was estimated that last year Japanese firms concluded more than US$2 billion worth of contracts in China, compared with $800 million in 1991 and $400 million in 1990. Mr Mori said Japanese firms had broadened the range of their investments in China from garments, electrical machinery and food processing to the service sector such as retailing and warehousing. But he cautioned that the rush of foreign investment could cause fresh problems in China, such as difficulty finding good managers and engineers, soaring land prices, rapid wage increases and insufficient infrastructure. He said serious bottlenecks might emerge soon in China, like those many other Asian countries had experienced. ''How to deal with the problems is crucial, in order for China to continue active foreign investment policies,'' he said. Mr Mori said Asian countries, particularly China and Vietnam, had replaced the United States as the focus of overseas investment for Japanese firms. The appreciation of the value of the yen had fuelled the trend that saw Japanese firms seeking to shift their production facilities to cheaper bases in Asian countries including China and Indonesia, he said. Mr Mori expected Japan's overseas investment, which had dropped in the past few years, to ''recover in a gradual way but not so rapidly as we have experienced in the late 1980s''. ''It is hoped that as our economy picks up, Japan's direct investment will recover,'' he said. But the uncertainties about the world economy were seen as a negative factor, which might discourage some Japanese overseas investment. ''At least at the present stage, a prevailing sentiment among enterprises seems to be that domestic projects may be safer and less troublesome,'' Mr Mori said. He said a bank had conducted a survey for 1,600 manufacturing companies in Japan early this year, which indicated that 80 per cent of respondents did not intend to invest more abroad for the time being. ''Many firms including banks and securities firms have been suffering from the collapse of the so-called bubble economy, and they will be much more occupied with the restructuring of their own houses, at least for several years,'' he said.