China's Utilization Of Foreign Direct Investment In Environmental Protection Issues

FDI has played a very important role in promoting China's economic development. However, environmental deterioration in China has become an increasingly serious problem and many factors can be attributed to it, among which FDI is the one that cannot be neglected.The relationship between FDI and environment is very complex. On one hand, FDI production activities assist to promote China's economic development, but on the other hand consume a large amount of natural resource and bring pollution. Theoretically, FDI affects environment by the intermediation of scale, composition and technique effects. This paper gives a general analysis of China's FDI and environmental pollution problem, estimates the economical cost of direct impact of FDI in China, explores both international and domestic incentives under which FDI prefers to invest in pollution-intensive industries, and studies the environmental effect of FDI by decomposing it into scale, composition and technique effects.Results can be clarified as follows. Firstly, the impact of FDI scale effect may worsen China's environmental problem since the turning point of EKC shows a gentle decreasing tendency without the affection of FDI. Secondly, FDI composition effect may decrease pollution emission by improving China's industry structure. Thirdly, FDI technique effect may also decrease pollution emission by introducing advanced technique and equipment of pollution control.Therefore, how to enlarge the positive contribution brought by technique effect and composition effect and to reduce the negative influence caused by scale effect should be put at the first place when considering policy recommendations. Specifically, the paper gives the following suggestion. The first is to promote upgrading of domestic industry structure. The second is to improve the public environmental protection awareness. The third is to make sustainable development strategy when concerning introducing FDI. The fourth is to strengthen government's ability to control pollution. The last is to adopt the principle of establishing recycling economy and finally realize sustainable development.