Japanese-Affiliated Firms and Environmental Problems in China: Environmental Implications of Foreign Direct Investment

Abstract

Extensive industrial relocation is taking place in Asia due to various factors such as labor costs, changes in the exchange rate, and the quest for new markets. In particular, Japanese manufacturers have largely shifted their production facilities to other countries in Asia. This paper discusses the environmental implications of the increased presence of Japanese-affiliated firms in China, which is the second largest recipient of Japanese foreign investment next to the US. The number of foreign-affiliated firms has increased gradually in China since the 1980s: in 1994, the share of foreign-affiliated firms in its industrial gross output value amounted to 13.6%, it was as large as 38% in Guangdongthe Province. Foreign-affiliated firms usually employ the same technology as they have used in their home countries, and this greatly contributes to the modernization of the industrial technology of the recipient country in terms of emissions and primary resource consumption per unit of production. It is estimated that the contribution of foreign-affiliated firms to the total energy consumption in China was about 2% while they contributed to a reduction in energy intensity per unit of production (energy consumption per GDP) in China by 26.5% from 1982 to 1994. This phenomenon was significant in Guangdong Province.