Mainland China is the second-largest host of FDI in the world, next only to the US since 2009, and the largest developing country recipient of FDI since 1991. China advocated the progressive reform policy, and shifted China from a planned economy to a market economy.
Many scholars believe that FDI plays an important role in the economic development of mainland China. Local governments were given more authority in attracting foreign investment. However, because China is vast geographically and due to the differences in the implementation of government policies, the economic and market developments are greatly diversified within China. This study proposes that the effects of the local market‟s development on the operating performance of the overseas subsidiaries.
The empirical results, based on the data obtained from the NERI INDEX of marketization, CCIS, TEJ, and China City statistical Yearbook over the period 2003-2007, showed that the low level of government intervention, high share of non-state-owned economy and well-developed legal protection are associated with a high performance of overseas subsidiaries. However, the market development has different influence on various industries. Other finding include: (1) The development of factor market is positively related to performance of overseas subsidiaries of basic manufacturing industry, yet it negatively related to technology intensive industry. (2) Firm size, telephone users, and the ratio of consumption wastes treated do positively influence overseas subsidiaries‟
performance, but firm size influences at a diminishing rate. (3) The research and development intensity do negatively affect the growth rate of sales of oversea subsidiaries.
This study explores the influences of market development on the performance of the Taiwan‟s overseas subsidiaries in mainland China. It is a direction to discuss the market development in mainland China, but with other countries‟ subsidiaries as the focus of study.
Furthermore, it can compare the results between Taiwan‟s overseas subsidiaries and other countries‟ overseas subsidiaries in China. In addition, it also can analyze the market development based on the data of cross-countries. In other words, the various degrees of market developments between countries may influence the performance of overseas subsidiaries of same home country. It can discuss whether the country with high market development has more positive contribution on the performance of overseas subsidiaries.
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Appendix A. Variables and Sources
Variable Definition Source
ln (sale) The logarithm of sales revenue CCIS
GOV The relationship between market and
GOODS The degree of goods market development NERI INDEX FACTOR The degree of factor market development NERI INDEX
LEGAL The degree of legal protection NERI INDEX
SIZE Total assets (1,000 Renminbi) CCIS
SIZESQ The square of total assets (1,000 Renminbi)
CCIS
RDI The expenditure on research and development over sales revenue.
CCIS
TEL Telephones per 10,000 person (sets) China City
Statistical Note: that all nominal variables are deflated by the GDP deflator with 2005 as the base year.
Appendix B. The descriptions of NERI INDEX of marketization
Variable indicator
GOV (1) the proportion of economic resources allocated by market (2) reduce the tax burden on farmers
(3) reduce government intervention in business (4) reduce the tax burden on businesses
(5) reduce the size of government
NON-STATE (1) the proportion of non-state-owned economy in industry sales (2) the proportion of non-state-owned economy in total fixed asset
investment
(3) the proportion of non-state-owned economy employment in total urban employment
GOODS (1) the extent of price determined by market (2) reduce local protection in goods market FACTOR (1) the marketization of Financial markets
(2) the extent of foreign investment (3) labor mobility
(4) the marketization of technological achievements
LEGAL (1) the development of market intermediaries (2) protect the legal rights of producers (3) intellectual Property Protection (4) the protection of consumer rights
The market development is composed of 23 indicators. The indicator in each province
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If the province performs best in the variable, it will get 10 point. On the contrary, if the province performs worst, it will get 0 point. The scores are between 0 and 10 for other provinces. The scores for indicator i in the base year are as follows:
10
The scores for other years are as follows:
10