Seeking Competitive Advantage in an Emergent Open Economy: Foreign Direct Investment in Chinese Industry

Abstract

In this paper we explore how foreign investors penetrate China's reforming economy and seek to build a competitive edge for their operations in local and international markets. Basing our study on a comparative analysis of the locational, sectoral, and organizational characteristics and performance variation of industrial firms invested by overseas Chinese and other foreign capital, we posit that effective manipulation of state action holds a key to the economic success of foreign-invested firms in post-Mao China. The role of social networks in influencing the selection and outcomes of foreign investors' strategies, which is emphasized by some existing studies, should be assessed not only in terms of its importance to market transactions, but more importantly, in terms of its utility in gaining ad hoc redistributive advantages and minimizing or containing unfavorable treatments from the still potent yet increasingly porous and localized state apparatus. Disaggregate data from a national industrial firm data set and a survey on the investment activities of Hong Kong manufacturers in China are used to test hypotheses derived from case-study findings with respect to three existing perspectives on the subject.