This study examines the firm-level and macroeconomic factors affecting foreign divestment in China. It employs a unique dataset of Japanese multinational enterprises (MNEs) from 1995 to 2016. Based on survival analysis, we find that affiliate size, profitability, labor productivity, and export proportion to Japan are negatively associated with MNEs’ divestment probability. Moreover, the probability of divestment increases with the size of the parent firm and its experience in the Chinese market but decreases with business relatedness between affiliate and parent firms, industrial minimum effective scale, and market concentration. We further examine the determinants of different divestment modes and post-divestment investment adjustment across regions and industries. Finally, we find that the Diaoyu/Senkaku Islands conflict and an increase in the minimum wage significantly raise the probability of Japanese divestment.
