Japanese direct investment in China had taken an important role in promoting Chinese economy development. The development of Japanese direct investment to China can be divided into three：stages the stage of overall starting，the stage of deepening cooperation and the stage of restructuring and transformation. Japanese direct investment in China focuses on manufacturing industries mainly in China’s eastern coastal areas. Through the analysis of international economy theory，using the empirical method of that ARMA model and Granger causality test，the article Japanese direct investment in China has the following economic effects on Chinese economy. Firstly，it promotes Chinese industrial upgrading. Secondly，it pushes the development of Sino-Japanese trade. Thirdly，it generates a technology spillover effect in China. China should use the advantage of its tremendous scale of market and improve its legal system to attract Japanese direct investment，which will contribute to the economic restructuring of China.