Foreign firms linked to up to 30% of China's carbon emissions, says study

Foreign companies drove a quarter of China's corporate emissions over two decades, with poorer inland provinces shouldering most of the environmental costs

Foreign multinationals accounted for as much as 30 per cent of China’s corporate carbon emissions over the past two decades, with a disproportionate burden falling on poorer inland provinces, according to a new Nature Communications study.

 

The research, conducted by the Chinese Academy of Sciences’ Academy of Mathematics and Systems Science in collaboration with Nanjing University, University College London and the University of Birmingham, found that multinational enterprises (MNEs) were responsible for 20–30 per cent of China’s total corporate carbon emissions between 1997 and 2017.

 

Numbers game

The study found that:

• 20–30 per cent: Share of China’s corporate carbon emissions linked to MNEs from 1997–2017.
• 266 per cent: Growth in MNE-linked CO2 emissions over the period, from 744 million tonnes to 2.72 billion tonnes.
• More than 25 per cent: MNE share of China’s total economic value added since joining the WTO in 2001.
• 70 per cent: Share of MNE economic gains captured by coastal provinces before 2012, despite producing only half the related emissions.

 

The big picture

MNEs have been both a driver of China’s economic boom and a contributor to its regional carbon divide. In the 15 years to 2012, more than half of those emissions originated in less-developed inland provinces, but these regions received less than 30 per cent of the economic benefits.

 

 

Eastern coastal provinces secured most of the profits while generating fewer emissions per yuan of output.

 

Shift to cleaner inland growth

Between 2012 and 2017, higher operating costs, stricter environmental regulations and targeted regional development policies encouraged more MNEs to expand into inland areas, often in cleaner, technology-focused industries.

 

Researchers said this shift helped narrow the “carbon Gini” coefficient: a measure of inequality between emissions and economic benefits, compared with a scenario without MNE participation.

 

Major emitting sectors included electricity, gas and water supply, metal processing, transport and resource extraction.

 

Over the two decades studied, MNEs’ economic value added rose from about 1.6 trillion yuan to nearly 22 trillion yuan, consistently accounting for more than a quarter of China’s total after the country joined the World Trade Organisation in 2001.

 

While early foreign investment concentrated in eastern provinces with stronger industrial bases, inland regions such as Sichuan, Chongqing and Guizhou often supplied carbon-intensive resources and intermediate goods. Improved infrastructure, maturing industries and refined policy incentives have since helped draw more foreign investment inland.

 

China’s structural emissions drop

In June, the World Economic Forum reported that China’s greenhouse gas emissions had fallen for the first time due to clean energy growth rather than economic slowdown. Previous declines in 2009, 2012, 2015 and 2022 were linked to recessions, industrial slowdowns or pandemic restrictions.

 

Recent growth in renewable and nuclear power has outpaced electricity demand, with solar and wind expansion exceeding the average demand growth rate of the past 15 years. Over that period, China has quadrupled solar capacity and doubled wind power, becoming the world’s largest clean energy investor. It added more renewable and nuclear capacity than any other country in 2024 and now ranks 12th in the World Economic Forum’s Energy Transition Index.

 

Why it matters

Foreign firms’ role in China’s emissions is not just a domestic issue: it is a global one. China is the world’s largest carbon emitter and was responsible for about a third of global CO2 output in 2020, according to the International Energy Agency. Any shift in how and where foreign firms operate can influence China’s, as well as global, climate outcomes.

 

If their inland expansion continues in cleaner sectors, as the study shows has been the case since 2012, the benefits extend beyond reducing inequality between Chinese provinces.

 

The road ahead

The authors of the study recommend policies to encourage further inland investment by MNEs, including improved governance, fiscal incentives and a unified national market to enable cross-regional capital flows.

 

“To prevent excessive outflows and attract new investment, China should strengthen political and economic ties with major economies while fostering a transparent, competitive business environment,” the paper said.

 

They warn, however, that rising labour costs, geopolitical tensions and economic uncertainty could deter foreign firms.