Opening to the outside world: The political economy of trade and foreign investment in the People's Republic of China

One of the most controversial topics in "development studies" has been the role of foreign direct investment in late industrializing countries. Debates over the advantages and disadvantages of foreign resources have occupied the attention of both scholars and policy-makers. But in many analyses the host state has been treated as an undifferentiated whole represented by the central government and its bureaucracies. In the case of the People's Republic of China the use of such a simplification obscures the most important variable, the impact of sub-national competition between localities to secure foreign investment, in explaining the pattern of foreign-funded industrialization which has occurred since the advent of China's "opening to the outside world" in 1979. To the extent that low transportation costs and the rapid flow of capital, goods, and information makes small enclave economies with high levels of reliance on international trade and investment a viable form of political organization, economic internationalization encourages defection (from central government objectives) which results in fragmentation. It will be documented, through case studies of the export processing and automobile industries, that the most important consequence of this fragmentation has been to erode China's bargaining position with a resultant loss of benefits from technology transfer. Such possibilities challenge the concepts of self-sufficiency, autonomy, and national security that undergirded the dominant model of economic development in the Third World since the end of World War II.