Foreign multinational enterprises pose hidden environmental pressures on China

Abstract

Foreign Multinational Enterprises (FMNEs), as core participants of Foreign Direct Investment (FDI), play a significant role in international transfers of pollutions, emissions, and resources. To mitigate the hidden environmental pressures induced by inward FDI, it is necessary for host countries to scrutinize the environmental spillovers of FMNEs from a life cycle perspective, rather than solely focusing on direct impacts. However, existing studies have primarily centered on the direct environmental impacts of FMNEs when evaluating their environmental externalities. In response to this limitation, we employed an environmentally extended Multi-Regional Input-Output model and the Analytical AMNE database to assess the life cycle environmental impacts of FMNEs in China, a leading destination for FDI globally. The study examines five environmental impacts, including carbon emission, blue water consumption, land use, metal depletion, and air pollution. The results show that FMNEs in China have low direct environmental footprints but receive substantial environmental footprints from their major upstream partners – Chinese domestic enterprises, posing a great “hidden” environmental pressure on China. The findings reveal that the FDI into China is seemingly clean from a “direct impact” perspective but in actually not environmental friendly from a “life cycle” perspective. Our research provides insightful implications for host countries to understand the environmental spillovers of FMNEs from a life cycle perspective and attract “life-cycle clean” FDI that harmonize economic value with environmental sustainability. The findings could guide policymakers to adopt effective environmental regulations to address carbon leakage, shifting the focus from producers to initiators.