A comparative analysis of the patterns of Japanese and Korean foreign direct investment in China

The current paper compares the patterns of Japanese outward foreign direct investment (OFDI) in China with that of Korea. As a result of the opening up of the Chinese economy together with the accumulating foreign exchange reserves, their FDI in China has risen over the past decades. The share of Japanese FDI in China has remained less than 20 percent of Japanese OFDI as a whole, while Korean FDI in China reached two-fifths of its total OFDI. The gravity model appears to be suitable for explaining the pattern of Korean FDI in China. By industries, the manufacturing sector has accounted for as much as or over three quarters of Japanese and Korean FDI in China. The former appears to be focused more on value-added industries such as machinery contributing to transfer of advanced technologies, while the latter is relatively more concentrated on labor intensive industries contributing to employment generation.