Japanese FDI and China’s Industrial Development in the Automobile, Electronics and Textile Industries

Abstract

Japanese foreign direct investment (FDI) to China rose sharply after 1991, reached a peak in 1995, and then suddenly dropped (Figure 9.1). One of the plausible explanations for this sharp rise and sudden drop is that most Japanese enterprises interested in investing in China had established their operations by 1995. The figure shows that the newly-pledged investments have diminished while the stock of investments is still increasing. Others may attribute this drop to the financial difficulties of Japanese business corporations, caused by the long, lingering depression of the Japanese economy. But this factor cannot explain the entire drop, because the portion of FDI to China to Japanese FDI to all countries has also shown a significant drop (Table 9.1). It does not seem either that China lost its attraction as a host country of FDI for all foreign companies, for the portion of Japanese FDI to all incoming FDI to China has also dropped (for Japanese FDI in China see also Chapter 3).