The Laussane, Switzerland-based International Institute of Management Development (IMD) has given a thumbs-up to China and India for their growing competitiveness. In IMD's World Competitiveness Yearbook rankings 2006 released on Wednesday, China and India have leapt up the rankings, China from 31 to 19 and India from 39 to 29.

China (19th) demonstrated its sharp economic growth by continuing its surge up the league table, leapfrogging 12 places since last year to reach the top 20.

"It is a quite remarkable fact that the largest nation in the world may soon become the first creditor of the largest capitalist nation in the world," Garelli pointed out.

China's forex reserves amounted to US$853.6 billion at the end of February, exceeding Japan for the first time to become the biggest forex reserves in the world.

However, China is one of 29 economies in the survey of 61 nations or regions where government is rated as having negative impact on competitiveness.

The US is still the world's most competitive economy but others are closing the gap, aided by better government performance and efficiency, according to the IMD report.

Hong Kong and Singapore come second and third respectively in the IMD's 2006 league table of 61 national and regional economies, followed by Iceland and Denmark. The UK (21) is the top-rated large European Union country, with Germany at 26, France at 35 and Italy near the bottom at 56.

"Hong Kong and Singapore are catching up with the US because their governments are more in synchronisation with economic performance," says Stephane Garelli, who directs the competitiveness programme at Lausanne-based IMD. He points to the contrast between strong US economic growth and the huge US budget deficit and foreign debt.

The IMD's annual ranking this year compares the scores of each country on economic performance with the efficiency of their government, defined to include such areas as budget deficits and red tape. The main government underachievers are Venezuela, Argentina, Brazil, Mexico, Poland and Italy - the only economy to record no growth last year. But the economy also substantially outperforms government in the US and France.

Prof Garelli argues: "A growing gap between governments and economic performance is always a bad omen for the future." He notes that the governments of China and India are also lagging behind as they struggle to keep pace with the consequences of explosive economic growth.

"Failure to do so may create economic and social imbalances that could jeopardize what has been achieved so far," he said.

Governments making a positive contribution to competitiveness, with government ratings higher than economic ones, include Finland, Denmark and Jordan.

While the top-ranked economies this year are broadly the same as last, further down the league table changes are more dramatic. China and India have leapt up the rankings, China from 31 to 19 and India from 39 to 29. Economies losing ground are Taiwan (18 from 11) and South Korea (38 from 29).

Competitiveness rankings are sensitive to indicators chosen and weights given them. But they tend to be heavily influenced by current performance, one reason why the league table by the Geneva-based World Economic Forum does not usually diverge significantly from IMD's.

The IMD scorecard uses 312 criteria grouped in four categories - economic performance, government efficiency, business efficiency and infrastructure - based on statistical data and an executive opinion survey.

The top 20 competitive economies:

1: United States

2: Hong Kong

3: Singapore

4: Iceland

5: Denmark (up 2 places)

6: Australia (up 3)

7: Canada (up 2)

8: Switzerland

9: Luxembourg (up 1)

10: Finland (down 4)

11: Ireland (up 1)

12: Norway (up 3)

13: Austria (up 4)

14: Sweden

15: Netherlands (down 2)

16: Bavaria (up 2)

17: Japan (up 4)

18: Taiwan (down 7)

19: China (up 12)

20: Estonia (up 6)