The Causes and Future of Taiwan and Hong Kong's FDI in Mainland China

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From 1979-2000, China pursued a policy this promoted FDI related to export promotion, which contributed to Taiwan and Hong Kong investment, because it helped it helped protect China’s local businesses. Market driven FDI, which is primarily what the US, EU and Japan are interested in investing, was limited in China because it would potentially hurt Chinese firms due to intense competition from western firms (Naughton, 403). The “western” firms were less interested in investing in China for export purposes, but rather wanted to take advantage of the massive market for consumer products present in China (Zhang, 294). Because of this, Taiwan and Hong Kong investment contributed a larger amount to FDI in China than compared with the US, EU…show more content…
China was interested in engaging economically with Hong Kong and Taiwan because it would lead to a transfer of technology, which would ultimately help China’s economy advance. Interestingly, the transfer of technology did not come from joint ventures or from the Taiwanese utilizing Chinese supply chains (Chien and Zhao, 250). Taiwanese firms in China are usually wholly foreign owned enterprises and Taiwanese firms maintained their existing production network, mainly other Taiwanese firms in China. “Taiwan firms only chose limited numbers of China’s local subcontractors because they could not rely on the local logistic support and production system, whose core technical skills and competencies were not available to fulfill the new IT global production requirements” (Chien and Zhao, 251). Despite some lack of interaction between Taiwanese firms and the local Chinese firms, China has sought continued Taiwanese investment because it has given China access to research and local China labor has become skilled in technology production. “Taiwan firms in China opened up their firms boundaries and added new departments of research, development and marketing to China” (Chien and Zhao, 252). This research helped Chinese firms jump-start technological upgrading, which was facilitated because Taiwanese firms in China hired local Chinese workers as managers. Though some of China’s technological advancement may have occurred by violation of “intellectual

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