Introduction

The People's Republic of China's (PRC) economic reforms, begun in the late 1970s and progressing through its entry into the WTO in 2001, have allowed it to participate more fully in international commerce and to benefit from economic growth. The PRC's rapid economic growth has been outpaced only by its even more rapid increases in international trade participation and receipt of foreign direct investment (FDI). As Figure 1 [ PDF 17.6KB | 1 page ] shows, the PRC's FDI inflows relative to Gross Domestic Product (GDP) have grown from 0.2% in 1982 to a high of 6.3% in 1993, then back down to 4.3% in 2007. The accumulated stock of FDI from 1982 rises particularly rapidly relative to GDP from the early 1990s to early 2000s, from only 8% in 1992 to a peak of almost 30% in 2002 before dropping modestly to 25.8% in 2007. Similarly dramatic growth has occurred in exports and imports relative to GDP, with the export share rising from 12.3% to 41.9% and the import share from 10.1% to 32.3% between 1982 and 2007. The rapid growth in the PRC's GDP, trade, and FDI made it the fourth largest economy, the third largest trading country, and the largest FDI recipient in the world in 2007.¹

The PRC's rapid economic growth and international integration have captured a lot of media attention and cocktail party theorizing as to the causal relationships within the PRC as well as possible impacts on the PRC's major trade and investment partners, such as Japan and the United States (US). In this paper, we jump on this bandwagon, but with a sobering examination of the available data from all three countries. We assess the FDI relationships between Japan, the PRC, and the US by analyzing data on FDI stocks and flows across the three countries along with data on the operations of Japanese and US affiliates in the PRC. We attempt to weigh the importance of these bilateral FDI relationships relative to other bilateral relationships for each country and we analyze the industrial composition of the three countries' investment relationships. Although the direct investment relationship between Japan and the US is still much larger than that between either country and the PRC, popular interest in the growth of the PRC's investments prompts investigation into those investments. We look for similarities and differences between Japanese and American multinationals in their approaches to investment in the PRC by examining operating data from their affiliates. We find evidence that Japanese affiliates in the PRC are more concentrated in manufacturing industries and are more export-oriented than their US counterparts, but that difference is shrinking.

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