China's new regulatory state: The government's bifurcated strategy toward foreign investment

The Chinese government takes a more liberal approach toward foreign direct investment (FDI) than any other large developing country in recent years. Why has China taken a more open strategy with foreign capital, fundamentally breaking from the East Asian model and its own Communist past? How has the Chinese government managed FDI to maximize benefits for the domestic economy? What does this mode of economic integration reveal about China's state capacity and development strategy?;This study investigates China's distinctive strategy of integration into the international economy and explores its implications for the role and capacity of the state. The Chinese government engages in a liberalization two-step ; it combines the liberalization of foreign investment at the economy-wide level with selective reregulation at the sectoral level. The Chinese government exercises a bifurcated strategy, which reinforces control in strategic sectors and relinquishes control in less strategic sectors.;This study examines how state control varies across sectors and across time with a comparative case research design. It begins with four in-depth case studies, telecommunications and textiles before and after China's entry into the World Trade Organization, and then presents mini-cases from other strategic (financial services, energy, and automobiles) and less strategic (consumer electronics, food stuffs, and paper) industries. The primary comparison between telecommunications and textiles demonstrates how the strategic value of a sector affects the state's goals, its relationship with industry, and its methods of governance. The Chinese government has introduced foreign competition in telecommunications to promote network development, and it has consolidated ministerial-level authority and expanded bureaucratic discretion to retain control of network infrastructure and information dissemination. In contrast, the state exercises only incidental control in textiles, combining FDI liberalization with the decentralization of economic decision-making. The strategic value logic also applies across subsectors: the state controls FDI more closely in telecommunication services than in manufacturing, for example. With respect to the secondary comparison across time, the structure of government institutions and the competitiveness of the domestic sector determine how the state reregulates after the initial phase of liberalization. Company case studies reveal in further detail how the state bargains with foreign capital.