Explaining the patterns of Japanese foreign direct investment in China

Abstract

Using Chinese and Japanese data, this paper shows that Japanese foreign direct investment (FDI) has been under‐represented in China since 1980, but especially before 1992, compared with Japanese FDI in some other East and Southeast Asian countries, and with FDI in China from other major international investors. The under‐representation of Japanese FDI in China, and its important patterns cannot be simply dismissed as being a result of China's poor investment environment. This paper proposes an alternative explanation by repositioning Japanese FDI in China into a larger historical, political and strategic framework. It argues that the growth of Japanese FDI in China has been shadowed by the lingering historical experiences of the two nations since 1895, and has been disrupted by a series of political incidents between the two countries during the previous 17 years.