FOREIGN direct investment in the first half of the year in Southeast Asia has returned to levels not seen since the late 1980s, says Morgan Stanley. This renewed activity, at a time when there was concern about a global capital shortage, should help underpin Asia's already vibrant economies, says economist Michael Taylor. The investment is sourced from the United States, Europe and Japan. It forms part of an overall restructuring process taking place, fundamental to the Western recessions and recoveries. The hefty investment flows are also linked to Western corporate desires to establish and develop footholds in this vibrant region. A feature of the investment is the apparently increasing proportion of foreign investors seeing China and Southeast Asia as complementary rather than competing investment destinations. Many of the destinations are valued because of the vitality and opportunities identified from their domestic markets, which are among the fastest growing in the world. This not only underpins regional economic vitality for some time, but also supports technological development in the region. In a similar view put by Thomas Robinson, manager, international of investment strategy, at Merrill Lynch, this foreign investment surge is not linked solely to cheap labour. Although a powerful driver, cheap labour alone cannot explain the desire of Western firms to invest in the region, he says. Technology transfer also is taking place, suggesting this investment wave is not a one-off, and that it is sustainable over the long term and will mean many Asian economies will remain competitive compared with their Western counterparts over the long term. In the West, the introduction of new technology, or the upgrading from an old process to a newer process that is not necessarily state-of-the-art, tends to be hindered by social and domestic economic concerns and expenses. Technology transfer in Asia allows cheap investment on ''green field'' sites. Going back to Mr Taylor's assessments of foreign direct investment flows, the picture relating to China appears confused. Foreign investment spending in the first half rose 54.9 per cent to US$14.7 billion, but foreign investment commitments fell 25.3 per cent to $44 billion. This might be explained by two factors. Of last year's total, 38 per cent was real-estate linked, a sector which saw a crackdown by the central authorities. In addition, tax changes have affected both the attractiveness and the certainties linked to investing in China. However, this apparent slowdown does not mean there will be an equivalent slowdown in infrastructure development and manufacturing growth. There are numerous problems trying to monitor investment flows in the region, especially as there can be huge differences between committed investment, which has been officially approved, and actual investment flows. Approvals between January and June in Malaysia doubled, they were up five-fold in Thailand, tripled in Indonesia and were up six-fold in the Philippines. Mr Taylor believes that at the margin, however, China probably has lost some of its comparative attractions to foreign investors, as the country embarks on a period of difficult financial and fiscal reform, sometimes plagued by high inflation. China remains an important destination for foreign direct investment, however, because of the strong and vibrant domestic economy.