Many developing countries attract foreign direct investment (FDI) to absorb advanced technology from investors that work at the frontier of technology and then stimulate domestic innovation. Local innovators in host countries might enhance their innovative capability quickly and easily by the presence of FDI (Blalock & Gertler, 2008;Cheung & Lin, 2004;Javorcik, 2004). As the world's largest developing country, China has sought to attract FDI to overcome the technology gap and facilitate a movement towards high-technology industrialisation. As shown in Figure 1, inward FDI has increased rapidly in China, from around 36,000 million US dollars in 1995 to around

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This paper explores the relationship between green consumption and the environment from a new perspective of green consumption on the demand side. This paper further investigates how to design an environmental policy package to achieve optimal social allocation. The results show that: first, green consumption can still improve the environment without supply-driven policy; second, demand-driven environmental change is better than supply-driven change in improving the environment and increasing social welfare; and third, a policy package which includes green consumption is more efficient.