Weak Environmental Regulations?

a) Present the main issue/assumption investigated in the paper

The present article aims to understand a contemporary issue that is the haven-seeking behavior concerning environmental regulations of foreign investors in China. They investigated whether FDI from ethnic-Chinese and OECD investors were associated with weak environmental regulations areas. Authors expected that firms will respond to interprovincial differences in pollution taxes when those taxes represent a significant cost. Moreover they hypothesized, that the abatement efficiency variation across firms will enhance differences in sensitivity within as well as between industries. Based on previous research, the present article suggested that investment from advanced countries as OECD embodies more environmentally friendly technology contrary to ethnic-Chinese countries as Hong Kong, Macao, and Taiwan. To test their assumption they proposed to compare sample of equity joint venture investments (1993-1996) with a measure of provincial stringency concerning environmental regulations in China.

b) Present the data about FDI in China

First, we can't help noticing that China is one of the most affected countries as far as FDI is concerned. For the first time in 2002, China has become the first destination for Foreign Direct Investment (FDI) in the world. This fact is impressive considering that China has just authorized foreign investments, and considering that FDI towards the other foreign countries is decreasing. Actually, we notice that: "China has been the largest recipient of FDI in the developing world since 1990". However, it was noticed that: "FDI inflows to China are remarkable for their wide distribution among industries and provinces". Actually, "Of the 28 manufacturing industries included in the 1995 Industrial Census, none had received more than 10 percent of total FDI." Since 1996, China has been attractive to more FDI than the other developing countries, but still stays under many countries which are members of OECD. According to OECD, in 2000, China with US$38,4 billion FDI, has been less effective than the USA, Germany, France and so on ...

c) Explain why there may be geographical differences in environmental regulation within China.

Following about twenty years of development, the corpus of the laws of control of the pollution in China is almost complete. But the controls of the application of the regulation are not the same in every regions of China. The cooperation between the central and local governments is insufficient. It has the effect that the local governments apply with a lot of flexibility the protective measures of the environment. Although the importance of the environment was already indicated by the central government from 1990, the criteria serving to estimate the capacity of the leaders of the local governments always remain strongly connected to the economy: the growth of GDP (Gross Domestic Product), the creation of the employment, the exports, the entrance of the IDE, etc. Because the administrative structure in China is similar to a federalist system, the various provinces feel in competition so that the local governments often tend to sacrifice the environment to obtain better economic statistics. We note very often the carelessness even