Assessing Foreign Direct Investment Relationships Between Japan, the People's Republic of China, and the United States

Abstract

The People's Republic of China (PRC) has received enormous inflows of foreign direct investment (FDI) in recent years, including significant flows from Japan and the United States (US). We examine these investment flows in detail to gain perspectives on their relative importance for the three countries involved. We also analyze the industrial composition of FDI flows over time. US FDI flows to the PRC have been less concentrated in manufacturing than average for investors in the PRC while Japan’s FDI flows have been much more concentrated in manufacturing, particularly in transport, electrical, and machinery industries in recent years. Using survey data from American and Japanese affiliates, we compare the employment patterns and sales destinations of American and Japanese affiliates in the PRC. We find a much higher degree of export-orientation for Japanese affiliates than American affiliates, with the latter tending to make the vast majority of their sales in the PRC's market. Over time, however, we find a tendency towards convergence in the sales destinations of Japanese and American affiliates.