Home Country’s Environmental Effects Of OFDI

Since 1978, China has committed to the introduction of foreign direct investment( abbreviated as FDI), while also has speed up the development of its outward foreign direct investment( abbreviated as OFDI). By the end of 2014, China’s outward foreign direct investment stock reached$ 882.64 billion, making it one of the top 10 countries who possess the most OFDI. According to the record that the Chinese Ministry of Commerce approved, there were nearly 30,000 OFDI enterprises established by 18,500 domestic investors in 2014, and the enterprises distributed in 186 worldwide countries and regions. Although China’s outward foreign direct investment is developing rapidly and makes remarkable achievements, it has caused serious impact in the domestic natural environment. In recent years, China’s environmental situation is getting worse. The national urban air quality situation is grim, since 2013, most regions of the country have experienced several times sustained large-scale fog and haze weather, which has seriously affected the residents’ lives. The quality of national water is not good either. Most of the rivers and lakes in the country are subject to different degrees of pollution, the pollutions in some urban rivers are particularly serious. The environmental situation in land is grim too. In addition to ecological damages like soil erosion and land degradation, land pollution that caused by human dumping and burying solid waste to land is becoming increasingly serious. Environmental issues are becoming the bottlenecks that restrict the sustainable development of China’s economy. Thus, it has important theoretical and practical meaning to explore the influences of OFDI on the home country’s natural environment, that is the home country’s environmental effects of OFDI, and explore the reasonable path of OFDI in the mode that the domestic economy and natural environment develop coordinate and sustainable.On the basis of the theories about OFDI and its influences on the natural environment, this paper find out the mechanism of action that how the OFDI affects the home country’s natural environment, and then use Chinese provincial panel data from 2003 to 2013, to construct a simultaneous equations model and do the empirical estimates. According to the current development of China’s OFDI and natural environment, we can see the impact of OFDI on China’s environment. The results show that, OFDI works on the home country’s environment mainly through the scale effect, the composition effect and the reverse spillover effect. The scale effect and the composition effect have increased China’s environmental pollution, while the reverse spillover effect has reduced the pollution. Overall, the impact of OFDI on the home country’s environment is negative, that is, the increase of Chinese OFDI has aggravated environmental pollution. Based on empirical results and China’s reality, this paper puts forward countermeasures and suggestions from five aspects. Firstly, China should actively promote international cooperation in equipment manufacturing capacity and accelerate the domestic industrial structure upgrading. Secondly, the balance between developing OFDI and protecting domestic environment needs to achieve in the policy background of "the Silk Road Economic Belt and the 21st-Century Maritime Silk Road". Thirdly, China should lead the OFDI from the industries where OFDI is speculative and rent-seeking to the industries where OFDI could obtain more resources, markets, technologies. Fourth, China should focus on stimulating effects it brings in the process of OFDI. Fifth, in order to achieve more reverse overflow, China’s foreign-invested enterprises should strengthen communication and cooperation with its Forward Linkages and Backward Linkages enterprises in host countries.