Comparative analysis of foreign direct investment in China Firms from South Korea, Hong Kong, and the United States in Shandong province

This article investigates in comparative perspective the behavior and strategies of FDI firms in China from South Korea, the United States, and Hong Kong. We compare the firms’ motivations for FDI, sectoral distribution of FDI and ownership advantages, corporate governance and ownership, and linkage with local Chinese firms. Our study has four major findings. First, on motivations for investment, the Korean FDI firms in China aimed to use China as an export-processing base, whereas the US FDI firms tend to target local Chinese markets. Hong Kong FDI firms tend to be somewhere between the Korean and the American firms, targeting both export and local markets. Second, on the sectoral distribution of FDI and related ownership advantages, the Korean FDI firms focus on labor-intensive sectors over which they have ownership advantages, exploiting cheap labor and raw materials, while ownership advantages of the US and Hong Kong firms tend to lie in capitalintensive sectors. Third, on the governance forms of the FDI firms, the Korean FDI firms show a strong preference for wholly foreign-owned FDI, whereas Hong Kong and American FDI firms show less preference for this type of arrangement. Hong Kong firms show some preference for the contractual joint ventures that enable more flexible arrangements between partner firms. Fourth, on linkage with local firms, Korean FDI firms rely very little on backward linkage with local firms, whereas US and Hong Kong firms show a strong tendency for backward linkage with local firms.