ABSTRACT
R esearch on the characteristics and determinants of foreign direct investment in China is still at the developmental stage. The main objective of this research was to contribute to the literature on FDI with respect to the locational characteristics of host country FDI, and the ownership characteristics of home country FDI. China was chosen as the host country for FDI given its prodigious growth rates in recent years and its explicit use of FDI as a development tool. The importance of China as the largest country in terms of population size and future market potential cannot be understated. Its ongoing transformation from being one of the poorest countries in the world, thirty years ago, to being the second largest economy in the world in the year 2000 in purchasing power parity terms, shows what can be achieved in a developing country with the appropriate development policies in place. China’s initiation of a reform process was particularly prompted by the economic success of its neighbors, most notably the ethnically Chinese locations of Hong Kong, Macau, Taiwan, and Singapore, not to mention Japan and its post WWII economic miracle. Whilst in the early post-war years, Japan’s outward flows of FDI were limited, Japan’s economic success, exemplified in its current account surpluses in the 1970s, and 1980s, led to a doubling in the value of the Yen as a result of the Plaza Accord in the mid 1980s. A massive outflow of FDI resulted due to increased factor costs at home. China, which began its reform process in the late 1970s, increasingly became one of the main recipients of these outflows, particularly in regard to manufacturing JFDI. Thus, the focus of this research is on the characteristics and determinants of Japanese FDI in China, in response to the dearth of literature on the subject, its inherent 216academic potential, and its importance for policy with respect to economic development in China.
