FDI In China: Policy And Strategy Application And Its Effects On The Environment

China's economic growth has been extremely rapid in the past two decades, with an annual growth rate of about 10%. Subsequently, environmental problems are threatening China's sustainable future. Pollution damage is estimated to be around $54 billion annually and closed to 3 % of Chinese GDP. Policy makers in China are facing the tradeoffs between economic growth and environmental protection. Growth of total factor productivity (TFP) plays an important role in GDP growth in China.This dissertation examines the role of foreign direct investment in China with particular focus on its implications for the environment. An overview of the government's FDI strategies and policies and practices in environment protection is presented; including a separate section devoted to the Chinese environmental regulatory framework regarding TNCs. The study shows that FDI generates both positive and negative effects on China's environment, but to identify the scale of such effects remains extremely difficult. My studies found no effective established standard for quantifying the excessive environmental damage some TNC causes.The studies also found correlation between the country's investment in projects for protecting the environment and levy fees paid by foreign firm. The relationship between the country's economic growth and its FDI still remains an ambiguous one as those factors determining each seem numerous. We however detailed a number of ways in which foreign capital had impacted the Chinese economy. I concluded that FDI plays a significant role in the country's economic growth but however posed a challenging task to policy makers in combating environmental degradation. The use of the environmental levy system proved effective also since profit maximizing firms would rather control emissions and solid waste discharge than pay higher fees charged by SEPA for exceeding the standard.