Domestic companies’ M&A and outbound investments continue to drive economic growth in Asia Pacific as confidence surges among Asian CEOs, according to a report from PricewaterhouseCoopers.

“This finding is in line with our view that domestic deal activity continues to power growth in China’s M&A market, and the Asian region can expect to be the surge of M&A activity during the course of the year,” said Christopher Chan, PricewaterhouseCoopers Transactions Partner in Hong Kong.

Having conducted 1,150 interviews in 50 countries during the last quarter of 2007, the PricewaterhouseCoopers 11th Annual Global CEO Survey showed that Asian Pacific CEOs’ confidence have increased to 56% last year from 49% in 2006, while 73% of them favoured Asia, especially China, as the ideal place for M&A.

In spite of the global market slump, Asian CEOs’ sentiment is different from those globally. 23% of Asian CEOs have completed cross-border deals within the past 12 months, while 73% of them prefer to make their deals within the Asia pacific region, an indication of their strong confidence which is different from the rest of the world - elsewhere, CEOs’ confidence level has declined for the first time since the 2003 survey.

This rising confidence is especially apparent in China and India; 73% of the CEOs in China and 90% in India were “very confident” about the prospects for growth in the next 12 months.

While China’s domestic M&A continues to power ahead, its booming economy remains an attraction to foreign players from developing countries with massive sovereign wealth funds in Asia as well as to the oil-rich Middle East.

“This surge in outbound investment has sparked protectionist sensibilities in certain quarters. However, some Asian and Middle Eastern investors have recognized the need to tread carefully; they are taking minority stakes to maintain a low profile and minimize opposition, particularly when they are investing in politically sensitive industries,” said Malcolm MacDonald, PricewaterhouseCoopers Transactions Partner in Beijing.

The survey also showed that CEOs have begun to look beyond existing markets for growth opportunities. Geographic expansion, mergers and acquisitions, new joint ventures, strategic alliances, technological innovation and improved customer service are considered to be main sources of competitive advantages.

However, the lack of people with appropriate skill sets is a critical concern for most CEOs, while concern over conflicting regulatory requirements comes second. 44% of Asian CEOs agreed that a country’s regulatory issues would often be constraints, while 94% of the respondents in Asia think that hiring people with the right skill set is the top priority for them in achieving success, according to the survey.

“This is particularly the case in China, where rapid economic growth has led to a shortage of middle-management professionals with the right skill set,” MacDonald said.