China will continue to remain the preferred investment destination for businesses – not India – over the next five years, according to a new report.

China will continue to significantly outpace India in attracting foreign direct investment between now and 2011, according to the report from the Economist‘s Economist Intelligence Unit.

FDI inflows into India are set to grow further over the medium term, but will remain well below potential because of continuing political resistance to privatisations, inflexible labour laws and poor infrastructure.

In contrast, China will have projected inflows of $87 billion in FDI per year in 2007-11, according to the report.

India is attracting greater FDI in the services sector but apparently seeing declining FDI in manufacturing.

The new report is titled World Investment Prospects to 2011: Foreign direct investment and the challenge of political risk and produced jointly by the Economist Intelligence Unit and Columbia Program on International Investment.