The Chinese Diaspora, Foreign Investment and Economic Development in China

Abstract

The opening of China to the capitalist world after 1979 was done in a spatial sequence designed to mobilize the resources of the overseas Chinese, with the Special Economic Zones located in the key areas of migrant origins. Including the ‘compatriots’ (tongbao) of Hong Kong, Macao and Taiwan, the great majority of foreign direct investment in China has come from the Chinese diaspora. Local development patterns have been strongly affected by the extent, or lack, of emigrant connections. This article examines the impact on local development of the mobilization of resources from the diaspora. Second, it is suggested that a new stage in the relationship is developing, where the capital of the overseas Chinese is becoming less significant, at least in richer areas such as the Pearl River Delta, as the differentials between Chinese inside and outside are changing. Some new patterns of transnational connections seem to be emerging, however, as China strategically endeavors to develop a knowledge-based economy. The effective interactions between overseas Taiwanese in Silicon Valley and the high-tech sector in Taiwan may be seen as a model for similar processes that are emerging between Taiwanese and certain regions of China, particularly in the Shanghai region.

Notes

Alan Smart is Professor at the Department of Anthropology, the University of Calgary, Alberta, Canada. Jinn-yuh Hsu is currently an associate professor in Geography at the National Taiwan University.

Quoted in Ronald C. Keith, ‘ “Strategic Ambiguity” and the new Bush Administration's “China Threat”’, The Review of International Affairs, Vol. 1, No. 2 (Winter 2001), pp. 1–19.

See, for example, Sidney Mintz, ‘The Localization of Anthropological Practice: From Area Studies to Transnationalism’, Critique of Anthropology, Vol. 18 (1998), pp. 117–33; and P. Hirst and G. Thompson, Globalization in Question (Cambridge, MA: Polity Press, 1996).

Alan Smart and Josephine Smart, ‘Transnational Social Networks and Negotiated Identities in Interactions between Hong Kong and China’, in Michael Peter Smith and Luis Eduardo Guarnizo, Transnationalism from Below (New Brunswick, NJ: Transaction Publishers, 1998), pp. 103–29. This usage draws on a long tradition of ethnographic examination of the strategic use of ambiguity in social interaction, see for example, Pierre Bourdieu, Outline of a Theory of Practice (Cambridge: Cambridge University Press, 1977); and F.G. Bailey, The Prevalence of Deceit (Ithaca, NY: Cornell University Press, 1991).

Josephine Smart and Alan Smart, ‘Personal Relations and Divergent Economies: a Case Study of Hong Kong investment in China’, International Journal of Urban and Regional Research, 15 (1991), pp. 216–33. See also Margaret M. Pearson, Joint Ventures in the People's Republic of China (Princeton, NJ: Princeton University Press, 1991); and Dorothy S. Solinger, Chinese Business Under Socialism (Berkeley, CA: University of California Press, 1984).

Alan Smart,‘ Oriental despotism and sugar-coated bullets: Representations of the Market in China’, in James Carrier, Meanings of the Market: The Free Market in Western Culture (Oxford: Berg, 1997), pp. 159–94.

Laurence J.C. Ma, ‘Space, place and transnationalism in the Chinese diaspora’, in Laurence J.C. Ma and Carolyn Cartier, The Chinese Diaspora: Space, Place, Mobility, and Identity (Lanham, MD: Rowman & Littlefield, 2002), p. 28.

Pearson, Joint Ventures, p. 4; Pitman B. Potter ‘Foreign Investment Law in the People's Republic of China: Dilemmas of State Control’, The China Quarterly, Vol. 141 (1995), pp. 155–85.

Hsing You-tien, Making Capitalism in China: The Taiwan Connection (New York: Oxford University Press, 1998); Tseng Yen-fen ‘From “us” to “them”: Diasporic Linkages and Identity Politics’, Identities, Vol. 9, No. 3 (July-Sept. 2002), pp. 383–404; Chen Xiangming, ‘Both glue and lubricant: Transnational Ethnic Social Capital as a Source of Asia-Pacific Subregionalism’, Policy Sciences, Vol. 33 (2000), pp. 269–87.

David Zweig, Internationalizing China: Domestic Interests and Global Linkages (Ithaca, NY: Cornell University Press, 2002), p. 31.

Ibid., p. 88.

Nicholas R. Lardy, Integrating China into the Global Economy (Washington DC: Brookings Institution Press, 2002).

Ministry of Foreign Trade and Economic Cooperation (MOFTEC), available at: http://www.moftec.gov.cn. Below, whenever statistics on FDI are cited without attribution to a different source, they are obtained from MOFTEC.

Chen Chunlai, ‘Foreign Direct Investment: Prospects and Policies’, in China in the World Economy: The Domestic Policy Challenges (Paris: OECD, 2002), p. 324.

Huang Yasheng, Selling China: Foreign Direct Investment during the Reform Era (Cambridge: Cambridge University Press, 2003).

The ratio of FDI to gross fixed capital between 1992 and 1998 was 13.1 percent for China compared to 6.9 percent for the United States. See Huang, Selling China, p. 13.

Huang Yasheng, ‘Internal and External Reforms: Experiences and Lessons from China’, Cato Journal, Vol. 21, No. 1 (Spring/Summer 2001), p. 54. In a parallel critique, it has been argued that China has been an underachiever in attracting FDI from the main source countries such as the US, instead relying on Hong Kong et al. See Wei Shang-Jin, ‘Why does China attract so little foreign direct investment?’, in T. Ito and A.O. Krueger, The Role of Foreign Direct Investment in East Asian Economic Development (Chicago, IL: University of Chicago Press, 2000), pp. 230–61.

Huang, ‘Internal and External Reforms’, p. 58.

This process can be seen as a variant of asset stripping prevalent in China's privatization, see Ding Xueling, ‘Who gets what, how? When Chinese State-Owned Enterprises become Shareholding Companies’, Problems of Post-Communism, Vol. 46, No. 3, 1999, pp. 32–41.

Huang, Selling China, p. 18.

Barry Naughton, Growing Out of the Plan: Chinese Economic Reform, 1978–1993 (New York: Cambridge University Press, 1995); and Zweig, Internationalizing China

Huang, ‘Internal and External Reforms’, p. 62.

Chen Chunlai, ‘Foreign Direct Investment’, p. 329.

Dilek Aykut and Dilip Ratha, ‘South-south FDI flows in the 1990s’, background paper for Global Development Finance, World Bank, April 3, 2002, p. 18; The United States-China Business Council, March 2002, available at: http://www.uschina.org/statistics/03-01.html. For a broader discussion of the accounting issues at stake, see Linda Low, Eric D. Ramstetter and Henry Wai-Chung Yeung, ‘Accounting for Outward Direct Investment from Hong Kong and Singapore: Who Controls What?’, in Robert E. Baldwin, Robert E. Lipsey and J. David Richardson, Geography and Ownership as Bases for Economic Accounting (Chicago, IL: University of Chicago Press, 1998), pp. 139–71.

Constance Lever-Tracy, David Ip and Noel Tracy, The Chinese Diaspora and Mainland China: An Emerging Economic Synergy (Houndmills: Macmillan Press, 1996); Brad Christerson and Constance Lever-Tracy, ‘The Third China? Emerging Industrial Districts in Rural China’, International Journal of Urban and Regional Research, Vol. 21, No. 4 (1997), pp. 569–88; George C.S. Lin, Red Capitalism in South China: Growth and Development of the Pearl River Delta (Vancouver, BC: University of British Columbia Press, 1997).

Huang Yasheng argues that these explanations for FDI based on investor motivations are inadequate since they do not account as to why domestic firms do not compete for the same opportunities. See Huang, Selling China, p. 42.

Alan Smart and Josephine Smart, ‘Failures and Strategies of Hong Kong Firms in China: An Ethnographic Perspective’, in Henry Wai-Chung Yeung and Kris Olds, Globalisation of Chinese Business Firms (London: Macmillan, 2000), pp. 244–71; Henry Wai-Chung Yeung, ‘Local Politics and Foreign Ventures in China's Transitional Economy: the Political Economy of Singaporean Investments in China’, Political Geography, Vol. 19 (2000), pp. 809–40; and Hsing, Making Capitalism in China.

Jianfa Shen, Kwan-yiu Wong and David K.Y. Chu, ‘Regional economic growth and factor contributions in the Zhujiang Delta Region of south China’, Asian Geographer, Vol. 20 (2001), pp. 125–51.

Smart and Smart, ‘Personal Relations’; Zweig Internationalizing China; and Shi Yi-zheng, Ho Po-yuk and Siu Wai-sum, ‘Market Entry Mode Selection: The Experience of Small Hong Kong Firms Investing in China’, Asia-Pacific Business Review, Vol. 8, No. 1 (Autumn 2001), pp. 19–41.

Ashok S. Guha and Amit S. Ray, ‘Expatriate vs. Multinational Investment: A Comparative Analysis of their Roles in Chinese and Indian Development’, paper presented at the ‘WTO, China and the Asian Economies’ conference, Beijing, Nov. 2002. Their analysis found that expatriate Chinese have been able to have more impact on economic development in China than in India.

Tseng, ‘Diasporic Linkages’; Hsing You-tien, ‘Ethnic Identity and Business Solidarity: Chinese Capitalism Revisited’, in Laurence J.C. Ma and Carolyn Cartier, The Chinese Diaspora: Space, Place, Mobility, and Identity (Lanham, MD: Rowman & Littlefield, 2002), pp. 221–35; Alan Smart and Josephine Smart, ‘Transnational Social Networks and Negotiated Identities in Interactions Between Hong Kong and China’, in Michael Peter Smith and Luis E. Guarnizo, Transnationalism From Below (New Brunswick, NJ: Transaction Publishers, 1998), pp. 103–29.

Hsu Jinn-yuh and AnnaLee Saxenian, ‘The Limits of Guanxi Capitalism: Transnational Collaboration between Taiwan and the USA’, Environment and Planning A, Vol. 32 (2000), p. 1994.

Douglas Guthrie, ‘The Declining Significance of Guanxi in China's Economic Transition’, The China Quarterly, Vol. 154 (1998), pp. 254–82; Mayfair Yang, Gifts, Favors and Banquets: The Art of Social Relationships in China (Ithaca, NY: Cornell University Press, 1994); Mayfair Yang ‘The Resilience of Guanxi and its New Deployments: A Critique of Some New Guanxi Scholarship’, The China Quarterly, Vol. 170 (June 2002), pp. 459–76; and Smart and Smart ‘Failures and Strategies’.

His research relied on formal questionnaires administered to employees in SOEs and joint ventures, with a resulting normative bias against the acknowledgment of the respondent's reliance on guanxi.

Lardy, Integrating China.

For a discussion of how China has reinterpreted ‘patriotism’ to encourage overseas Chinese to contribute to the building of the nation, see Pal Nyiri, ‘Expatriating is patriotic? The discourse on ‘new migrants’ in the People's Republic of China and identity construction among recent migrants from the PRC’, Journal of Ethnic and Migration Studies, Vol. 27, No. 4 (Oct. 2001), pp. 635–53.

Michael Storper and Robert Salais, Worlds of Production: The Action Frameworks of the Economy (Cambridge, MA: Harvard University Press, 1997).

Chen/Xiangming, ‘Both glue and lubricant’ (2000).

Manuel Castells, The Rise of the Network Society (Oxford: Blackwell, 1996); Michael Best, The New Competitive Advantage: the Renewal of American Industry (Oxford: Oxford University Press, 2001).

Jeffery Henderson et al., ‘Global Production Networks and the Analysis of Economic Development’, Global Production Networks Working Paper 1, 2002 available at http://www.art.man.ac.uk/Geog/gpn/wp.html.

Michael Best, The New Competitive Advantage: The Renewal of American Industry (Oxford: Oxford University Press, 2001)

Mario Amendola and Jean-Luc Gaffard, The Innovative Choice (New York: Basil Blackwell, 1988).

Best, The New Competitive Advantage.

Bengt-Ake Lundvall, ‘The Social Dimension of the Learning Economy’, Danish Research Unit for Industrial Dynamics (DRUID) Working Paper, 96–1, 1996 available at http://www.druid.dk.

AnnaLee Saxenian and Jinn-yuh Hsu, ‘The Silicon Valley-Hsinchu Connection: Technical Communities and Industrial Upgrading’, Industrial and Corporate Change, Vol. 10, No. 4 (2001), pp. 893–920; Hsu and Saxenian, ‘The Limits of Guanxi Capitalism’.

Alice Amsden, The Rise of the Rest: Challenges to the West from Late -industrialization Economies (Oxford: Oxford University Press, 2001).

For example, see Mike Hobday, ‘The Electronics Industries of the Asia-Pacific: Exploiting International Production Networks for Economic Development’, Asian-Pacific Economic Literature, Vol. 15 (2001), pp. 13–29.

AnnaLee Saxenian, ‘Silicon Valley's New Immigrant High-Growth Entrepreneurs’, Economic Development Quarterly, Vol. 16, No. 1 (2002), pp. 20–31.

Alejandro Portes, ‘Global villagers: the rise of transnational communities’, The American Prospect, March-April 1996, pp. 74–7.

Etienne Wenger, Communities of Practice: Learning, Meaning, and Identity (Cambridge: Cambridge University Press, 1998).

Chen Xiangming ‘Both Glue and Lubricant: Transnational Ethnic Social Capital as a Source of Asia-Pacific Subregionalism’, Policy Sciences, Vol. 33 (2000), pp. 269–87.

Cf. Se-Hwa Wu, ‘Dynamic production networks in the IC industry’, in Ly-Yun Chang, Corporate Networks in Taiwan (Taipei: Yuan Liou Press, 1999) (in Chinese).

Walter Powell ‘Trust-based forms of governance’, in R. Kramer and T. Tyler, Trust in Organizations (Thousand Oaks, CA: Sage Publications, 1996).

As well noted by Saxenian in ‘Silicon Valley's New Immigrant High-Growth Entrepreneurs’, the overseas Indians have a software business connection with their motherland, despite being less entrepreneurial than their Taiwanese counterparts.

The production value of Taiwan's PC sector reached 3,380 billion US dollars in 1998, and over 29 percent of the value was created by Taiwanese investors in China (see, Wall Street Journal, Oct. 21, 1998). In addition, the ratio of made-in-Taiwan PC products declined from 72 percent in 1995 to 52.7 percent in 1999, and the proportion of made-in-China PC products rose from 14 percent to 33.2 percent at the same period (see Market Intelligence Center of the Institute of Information Industry. The Year Book of Computer Industry, (Taipei: MIC, 2001)).

The estimated cost savings (including material cost, direct labor and indirect labor) to Taiwanese PC companies ranged from 22 percent in mice production, to 8 percent in monitor making, in comparison with offshore manufacturing in China in 1993. The range was between 16 percent and 4 percent, in comparison with Malaysia. See Chung Ching, ‘Division of labor across the Taiwan Strait: Macro overview and analysis of the electronics industry’, in B. Naughton, The China Circle (Washington DC: Brookings Institution Press, 1997), pp. 164–209.

For example, the Sky Hawk Computer Group established a new company to take charge of its business with the local key customers, such as the Legend Computer and Haier Group.

Even though China promised to open its market to foreign companies as part of the conditions for WTO membership, there still existed many barriers, including preferential procurement policies for local companies by the governments, the existence of so-called ‘dukedom’ economies providing local protectionism in each province and county, and unreasonably high transportation costs and fees for non-local companies (see Common Wealth, Oct. 2001).

China Times, Jan. 9, 2002.

China Times, Jan. 29, 2002.

Su-Yu Zhuang, Taiwanese High Technology Firms Cluster in YRD (Taipei: Global View Publisher, 2001) (in Chinese).

Interview with Mr Huang P., Vice President, Inventec Group (Shanghai), Aug. 16, 2001.

Tse-kang Leng, ‘Economic Globalization and IT Talent Flows Across the Taiwan Strait: The Taipei/Shanghai/Silicon Valley Triangle’, Asian Survey, Vol. 42, No. 2. (2002), pp. 230–50.

Hsing, Making Capitalism in China.

Electronic Engineering Times, Jan. 14, 2002.

Susan Walcott, ‘Chinese Industrial and Science Parks: Bridging the Gap’, The Professional Geographers, Vol. 54, No. 3 (2002), pp. 349–64.

Far East Economic Review, June 15, 2000.

Electronic Engineering Times, Jan. 14, 2002.

AnnaLee Saxenian, ‘Brain Circulation and Chinese Chipmakers: The Silicon Valley-Hsinchu-Shanghai Triangle’, unfinished manuscript, available from the author, (2003).

A number of famous examples include Ta-lin Hsu of HQ, Lin of Trident Semiconductor, Lip-Bu Tan of The Walden International Investment Group, and Ken Tai of InveStar. See Saxenian and Hsu, ‘The Silicon Valley-Hsinchu Connection’, for the details of their contribution to the Silicon Valley-Taiwan connection.

Saxenian, ‘Brain circulation and Chinese chipmakers’; Tse-kang Leng, ‘Economic Globalization and IT Talent Flows Across the Taiwan Strait’.

Lundvall ‘The Social Dimension of the Learning Economy’.

Additional information

Notes on contributors

Alan Smart

Alan Smart is Professor at the Department of Anthropology, the University of Calgary, Alberta, Canada. Jinn-yuh Hsu is currently an associate professor in Geography at the National Taiwan University.