Production and R&D Networks of Foreign Ventures in China: Implications for Technological Dynamism and Regional Development

Abstract

This paper analyzes the nature of FDI local networks in production and R&D activities in China and discusses their implications for technological dynamism and regional development. We investigate foreign ventures (or foreign-invested enterprises, FIEs) in the information and communication technology (ICT) industry, based on a large-scale survey of ICT firms conducted in three mega-city regions of China: Beijing, Shanghaie-Suzhou, and Shenzhene-Dongguan. Our data show that FIEs in China are gradually localizing their production, but the extent of local embeddedness is contingent upon home country effects, local specific contexts and FDIehost region relationships. We have also found significant influence of industrial agglomeration on FDI location and network decisions. Beijing tends to have broader FDI sources and better integrated global-local networks, while in those regions dominated by FDI such as Suzhou and Dongguan, FIEs are thinly embedded with local economies and tend to establish global-local networks among themselves; local embeddedness is limited by a series of technological, institutional, spatial, and structural mismatches. Shanghai and Shenzhen are in between. More efforts are still needed to better integrate FDI with local economies and strengthen China’s local innovative capacities.

Keywords: Foreign investment, Production networks, Embeddedness, Regional development, China

JEL Classification: O140, O180, O190