With higher cost and labour wages, foreign investment in China's manufacturing sector has started to slowly decline after years of strong gains, suggesting the country is losing some of its luster as a base for inexpensive production, the Wall Street Journal reported. Although investment arrives at around 60 billion US dollars a year, China’s direct investment dropped slightly in 2005, excluding a series of one-time deals in the financial sector. After a 12% plunge in June, the figure is down a further 0.5% for the first half of 2006. Many factors are at work. At this point, much of the manufacturing that can be profitably shifted to China has already moved, while the lowest-end production is starting to migrate away to less-expensive locations. And while multinationals' interest in China is broader than just export-driven manufacturing, the difficulty of buying domestic companies and the limits on foreign participation in service businesses are keeping those channels from becoming big new drivers of investment, said the paper. "China should think about how the country is going to position itself for the next 10 years," says Xiang Bing, dean of the Cheung Kong Graduate School of Business. "Multinational corporations won't put all their eggs in one basket. There are incentives for diversification." Yet, stagnation or a small decline in foreign direct investment isn't necessarily bad news for China. At a time when the biggest worry is that the economy could be growing too fast and authorities are trying to slow down domestic investment, a reduction in foreign inflows is probably welcome. Less foreign investment could also trim the external imbalances that created pressure on China to push up the value of its currency, the yuan.