Japanese direct investment in China

Abstract

This paper examines the recent trends, characteristics and determinants of Japanese direct investment in China. To study these issues, we first use qualitative and survey data to compare Japanese direct investment in China with similar investment in other Asian countries. We found that within Asia, China is the largest recipient of Japanese direct investment, with Hong Kong and Thailand coming in second and third. 76.5% of Japanese direct investment in China is in manufacturing. Such concentration in manufacturing is typical for Japanese investment in developing Asia, but rather unusual compared with Japanese investment in other developed countries. Almost one-third of Japanese investment in China is in electrical machinery. 40% of Japanese firms invest in China for cost reasons, while 21% say that they invest in China to expand market shares in China. In 1999, Japanese affiliates in China procure 47% of their inputs from China and sold 47% of the goods locally in China. We also examine econometrically the determinant of Japanese direct investment in various regions of China and compare these locational factors for direct investment from Hong Kong, the largest foreign investor in China. We found that Hong Kong companies place a stronger emphasis on labor costs and a smaller emphasis on labor quality compared to Japanese multinationals. In addition, Japanese firms prefer Economic and Technology Development Zones (ETDZs) while Hong Kong firms are attracted to Special Economic Zones (SEZs).

Risk and the technology content of FDI: A dynamic model

“…The implication that inward FDI in an industry will take place only if the South's technology frontier achieves a certain minimum threshold is consistent with the location choice of multinational firms documented by Kellenberg (2007), Fung et al (2004), Globerman and Shapiro (2003), Wei (2000), and Cheng and Kwan (2000). Proposition 1 also implies a positive correlation between the risk sensitivity level and the required threshold of the South's technology frontier in order for FDI to take place.…”

Does Final Market Demand Elasticity Influence the Location of Export Processing? Evidence from Multinational Decisions in China

“…Recent studies of the distribution of aggregate FDI flows among Chinese provinces or regions include Coughlin and Segev (2000), Cheng and Kwan (2000), Parker (2002), Gao (2005), and Fung, Iizaka, and Siu (2003). In all these studies, the wage is found to be a statistically significant, negative determinant of the value of FDI flowing into a Chinese province or region.…”

“…The authors ascribe the observed difference in behavior to clustering by U.S. owned firms in capital intensive sectors and to the export-processing focus of Hong Kong owned enterprises. Fung, Iizaka, and Siu (2003) compare Japanese and Hong Kong flows into Chinese regions and also find that Hong Kong investment is more sensitive to wage differences. Our results, based on project-level data and conditional logit analysis, do not support this characterization of differences in behavior.…”

FDI Flows to Latin America, East and Southeast Asia and China: Substitutes or Complements?

“…Better developed regions with a superior quality of infrastructure can also be more attractive to foreign firms relative to others by including in our regressions the proxy, the number of telephone mainlines per 1000 people. Parker (2002), Fung, Iizaka andSiu (2003) as well as Fung, Garcia-Herrero, Iizaka and Siu (2005) show that at least in some instances, FDI is attracted to a Chinese province with a better infrastructure. Standard errors in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%…”