中國的空間發展和產業遷移以富士康為例 - 政大學術集成

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(1)國立政治大學亞太研究英語碩士學位學程 International Master’s Program in Asia-Pacific Studies College of Social Sciences National Chengchi University. 碩士論文 Master’s Thesis. 立. 政治大. ‧ 國. 學. ‧. 中國的空間發展和產業遷移以富士康為例 China’s spatial development and inland industrial relocation: A case study of Honhai-Foxconn. n. er. io. sit. y. Nat. al. Ch. i. e. i n U. v. g c h林璽謙 102926037 Student: MichelenGori Advisor: Hsiao-hung Nancy Chen 陳小紅. 中華民國 104 年六月 June, 2015 I.

(2) 中國的空間發展和產業遷移以富士康為例 China’s spatial development and inland industrial relocation: A case study of Honhai-Foxconn. 研究生:. Student: Michele Gori 林璽謙. 治 Advisor: Nancy Chen 陳小紅政 Hsiao-hung. 指導教授:. 大. 學. ‧ 國. 立. 國立政治大學. ‧. 亞太研究英語碩士學位學程. n. al. y er. io. sit. Nat. 碩士論文. Ch. Ag Thesis en chi. i n U. v. Submitted to International Master’s Program in Asia-Pacific Studies National Chengchi University In partial fulfillment of the Requirement For the degree of Master in China Studies. 中華民國 104 年六月 June 2015 II.

(3) ACKNOWLEDGEMENTS I would like to thank my thesis advisor, Hsiao-hung Nancy Chen, for all her help, guidance and insight on this project as well as my thesis committee for their brilliant inputs. Without their honest critique and the contribution of their ideas, this thesis would not have been as it is. And thank you especially to my parents and family members who have shown their support and enthusiasm throughout the years of my studies.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. III. i n U. v.

(4) ABSTRACT Over the last few years, Foxconn has started to gain massive international attention, however influenced by the high rate of suicides that afflicted plants in Mainland China, scholars focused the most on the labor condition of Foxconn workers, pushing the company’s very interesting business expansion, diversion and relocation into the background. This paper will focus on these processes in the context of China’s economic development of the past forty years. A growing literature about the latest developments of the Chinese economy adopts the flying geese model to describe the phenomenon of factory relocation that is taking place within the Chinese national borders. Foxconn is also part of the process.. 政治大 making clear that the model falls short in explaining some aspects of this phenomenon. 立 A detailed description of China spatial development, that is the gradual development For this reason this work will also join in the scholar debate about the flying geese,. ‧ 國. 學. of different regions brought about the launch of national and local policies, will make up for the shortcomings.. ‧. Results show that investments were often taken according to the relative comparative advantage of regions in their respective stage of development, however. y. Nat. sit. in some cases China’s governmental policies changed the country’s comparative. er. io. advantage dynamics, and investments’ driving forces were therefore in contrast with. al. Akamatsu’s precepts. An analysis of Foxconn direct and indirect investments shows. n. v i n that the company has mirrored and evolved simultaneously in C hthe growth of China, U i e h n g c they have moved investments from the two different ways: geographically speaking Chinese coast to the central regions, and further to South East Asia, US and Europe; while at the same time expanding production into a more diverse and advanced set of products.. Keywords:. China, FDI, flying geese model, Foxconn, Lewis Turning Point, investment relocation, spatial development.. IV.

(5) 摘要近年來，富士康受到國際間高度的重視，然而，富士康中國工廠員工的高自殺率使得學者較重視員工的工作情況，鮮少對公司的擴張、轉移以及搬遷進行研究。本文聚焦於過去四十年富士康在中國的經濟發展面向。使用雁行理論分析中國經濟發展的文獻不斷增加，富士康也參與於該理論所描述之中國邊境的工廠遷移現象，因此，本文整理學者對雁行理論的論辯，指出該理論無法解釋中國邊境發生的經濟現象。為彌補雁行理論的不足，我們將敘明中國空間發展於不同區域的漸進式轉變，係透過中央與地方政策的施行而開始。研究結果顯示，依據區域經濟的發展階段差異，投資往往發生在相對優. 政治大不符合日本學者赤松要提出之雁形理論。一份關於富士康的直接與間接投資的立. 勢的地區，然而，透過政策影響國家之動態優勢，以及投資趨動力……等，並. ‧ 國. 學. 分析指出，富士康的發展方向反映了中國的整體經濟發展，並且有兩個同時進行的發展方向：其一，地理上來說，富士康將投資從中國沿岸地區轉移至內陸. ‧. 地區，甚至進一步移往東南亞及歐美地區。其二，富士康將其產品種類擴大並提升到更多元及優質的方向。. sit. y. Nat. n. al. er. io. 關鍵字：中國、對外直接投資、雁形理論、富士康、路易斯轉折點、投資搬遷的移轉、空間發展。. Ch. engchi. V. i n U. v.

(6) TABLE OF CONTENTS ACKNOWLEDGEMENTS ..................................................................................................... III ABSTRACT.............................................................................................................................IV 摘要 ........................................................................................................................................ V TABLE OF CONTENTS.........................................................................................................VI LIST OF TABLES AND FIGURES ..................................................................................... VIII LIST OF ABBREVIATIONS ................................................................................................... X PREFACE .................................................................................................................................. 1. 1.2. 治政 Theoretical Framework ........................................................................................................ 3 大立................................................................................................................ 4 Research questions. 1.3. Methodology........................................................................................................................... 4. 1.4. Methodological issues and research limitations ............................................................... 5. 1.5. Foxconn in the literature ...................................................................................................... 8. INTRODUCTION ............................................................................................................... 2 1.1. ‧. FLYING GEESE PATTERN OF ECONOMIC DEVELOPMENT ................................. 12 The Original FGM ..............................................................................................................12. sit. y. Nat. 2.1. 2.1.2. Variant pattern ........................................................................................................................ 14. 2.1.3. Advanced - less advanced pattern..................................................................................... 15. al. v i n C h ....................................................................................................... A leading growth sector 16 engchi U n. 2.2. er. Fundamental pattern ............................................................................................................. 13. io. 2.1.1. 2.1.4. 3. 學. 2. ‧ 國. 1. Flying Geese Pattern of domestic industrial relocation ................................................18. GOVERNMENTAL POLICIES ....................................................................................... 21 3.1. Spatial development China ................................................................................................21. 3.1.1. 1980s: Pearl River Delta ..................................................................................................... 22. 3.1.2. 1990s: Yangtze River Delta................................................................................................. 23. 3.1.3. 2000s: Bohai Rim ................................................................................................................... 24. 3.1.4. 1010s: Western Development ............................................................................................. 25. 3.1.5. Growth engines ....................................................................................................................... 26. 3.2. Agglomeration .....................................................................................................................27. 3.3. Local Policies.......................................................................................................................28. 3.3.1. Provide labors ......................................................................................................................... 29. 3.3.2. Provide economic incentives .............................................................................................. 30. VI.

(7) 3.4. 3.4.1. Environmental regulations in Taiwan and China: ...................................................... 32. 3.4.2. Rising wages in Taiwan and China: ................................................................................ 33. 3.4.3. Agglomeration diseconomies: ............................................................................................ 34. 3.5. FOXCONN/HONGHAI .................................................................................................... 35 4.1. Foxconn: some general information .................................................................................35. 4.2. Industrial relocation within China....................................................................................36. 4.2.1. Economic Zones...................................................................................................................... 38. 4.2.2. Pearl River Delta ................................................................................................................... 41. 4.2.3. Yangtze River Delta ............................................................................................................... 43. 4.2.4. Bohai Rim ................................................................................................................................. 46. 4.2.5. Great Western region............................................................................................................ 51. 4.3 4.4. 政治大 Relocation outside China ...................................................................................................54 立 Industrial upgrading ...........................................................................................................57. 學. 5. Spatial and temporal variation of investments in China. ..............................................35. ‧ 國. 4. “Push” factors .....................................................................................................................31. CONCLUSION ................................................................................................................. 60 5.1. Further research ..................................................................................................................62. ‧. REFERENCES ........................................................................................................................ 64. Nat. n. al. er. io. sit. y. APPENDIX .............................................................................................................................. 78. Ch. engchi. VII. i n U. v.

(8) LIST OF TABLES AND FIGURES Figure 1.. Theoretical framework. 3. Figure 2.. Fundamental pattern. 12. Figure 3.. Variant Pattern. 13. Figure 4.. From advanced to less advanced pattern. 14. Figure 5.. Reformulated model. 16. Figure 6.. Minimum wages across China. 18. Figure 7.. Average monthly salary, Taiwan. 32. Figure 8.. Average monthly working hours, Taiwan. 32. Figure 9.. Number of investments in China. 35. Figure 11.. 政治大 Value of investments in China (USD) 立 geographical distribution Investments'. Figure 12.. Investments by region (%). 37. Investments by region (USD) Investments by region (% of total). 39. y. 39. sit. 38. Geographical distribution of Foxconn investments in the PRD. 40. Foxconn investments in the PRD (USD). Figure 17.. Foxconn Investments in Shenzhen (USD). Figure 18.. Geographical distribution of Foxconn investments in the YRD. er. io. Figure 16.. Figure 21.. Geographical distribution of Foxconn investments in the Bohai. n. Figure 20.. al v i Foxconn investments in the YRD (USD) n Ch e nin gKunshan Foxconn investments chi U. Figure 19.. 37. Nat. Figure 15.. 36. ‧. Figure 14.. 35. 學. Figure 13.. ‧ 國. Figure 10.. 41 41 42. region. 43. Figure 22.. Foxconn investments in the Bohai region (USD). 43. Figure 23.. Foxconn investments in Beijing. 45. Figure 24.. Foxconn investments in Tianjin. 47. Figure 25.. Foxconn investments in Yantai. 47. Figure 26.. Geographical distribution of Foxconn investments in the central regions. 49. Figure 27.. Foxconn investments in the central regions (USD). 49. Figure 28.. Zhengzhou cluster. 50. Figure 29.. Chengdu – Chongqing cluster. 51. VIII.

(9) Figure 30.. Foxconn Technology Group global distribution. 52. Table 1.. Top 5 cities for Foxconn Investment. 38. Table 2.. Zhengzhou Cluster investment in the most recent 3 years. 50. Table 3.. Foxconn 2012 and 2013 investments in non-traditional sectors. 55. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. IX. i n U. v.

(10) LIST OF ABBREVIATIONS AGM. Annual General Shareholders’ Meeting. BDA. Beijing Economic and Technological Development Zone. CAFOD. Catholic Agency for Overseas Development. CCP. Chinese Communist Party. ECFA. Economic Cooperation Framework Agreement. eCMMS. e-enabled Components, Modules, Moves and Services. EPA. Environmental Protection Administration. EPZ. Export Processing Zone. ETDZ. Economic and Technological Development Zones. FDI. Foreign Direct Investments. FGM. Flying Geese Model. GDP. Gross Domestic Product. GPN. Global Production Networks. ‧ 國. KETZ. Information and Communications Technology. International Monetary Fund. ‧. IMF. 立. 學. ICT. 政治大. Kunshan Economic and Technology Zone Multi National Corporation. MOE. Ministry of Education (People’s Republic of China). MOEAIC. Ministry of Economic Affairs Investment Commission. NTD. New Taiwanese Dollar. PRD. Pearl River Delta. RMB. Ren Min Bi. R.O.C.. Republic of China (Taiwan). SACOM. Students and Scholars Against Corporate Misbehavior. SEZ. Special Economic Zones. TBNA. Tianjin Binhai New Area. TEDA. Tianjin Economic-Technological Development Area. UN. United Nations. USD. United States Dollar. WTO. World Trade Organization. YRD. Yangtze River Delta. ZSP. Zhongguancun Science Park. n. al. er. io. sit. y. Nat. MNC. Ch. engchi. X. i n U. v.

(11) PREFACE. During summer 2014 I had the opportunity to serve two-month internship in a factory located in Dongguan specialized in the design, manufacturing and global marketing of electronic components (coils, inductors, transformers…) used in devices like mobile phones, computers, office equipment, TV and consumer electronics in general. Two Hongkongese entrepreneurs founded the company in early 1980s, and after opening the plant in Dongguan, in the following years they further set two new plants up in En Ping and Shanghai Jiading, in line with the northbound industrial expansion witnessed by many other foreign firms.. 政治大 eight hundred workers most of which migrated to Guangdong from the neighboring 立 regions of Guangxi, Hunan, Hubei and Jiangxi. In less than three years, however, the. The factory where I served my intern, at the end of 2011 used to employ about. ‧ 國. 學. number of workers reduced to the astonishing low number of three hundred and, at a slower pace, is further declining. Most of those workers were not hired with better. ‧. wages and benefits in other factories of the Pearl River Delta but decided, without giving advance notice, not to go back to work at the end of the Chinese new year. sit. y. Nat. vacation.. er. io. Shortage of labors in the area of the Pearl River Delta is a problem that affects. al. v i n Hongkongese, Taiwanese, Japanese C h and EuropeanUentrepreneurs I had the opportunity e concerned g c h iwith the future developments of their to meet during my intern, were all n n. many firms and jeopardizes their ability to process orders within reasonable time. The. companies. Should I continue to stay in the region and make do with lower sales volumes? Is it better to move the plant inland or abroad? Is it convenient to open a new production line in China nowadays? Are some of questions that come up in the informal conversations among businessmen. Having experienced the difficulties that a small foreign enterprise faces due to the changing competitive advantages in the Chinese economic scenario, I felt compelled to research how a big multinational corporation is handling the same problems. Dealing with an enormous number of workers, tens of plants and thousands of different products, the analysis of Foxconn allows me to collect from a single source the same amount of information that only hundreds small enterprises’ business. 1.

(12) plans can provide. These data will be useful to trace out a pattern from the chaotic continuum of Foxconn’s entrepreneurial decisions. By understanding how a company innovates its products and production methods, which are the factors that push entrepreneurs to invest far away from the original production base, relocate production or close the business, we have the tools to forecast in a more precise way the future investment strategy of Foxconn and therefore the future developments of the Chinese economy.. 1. INTRODUCTION. Foreign direct investment has played a key role in the rapid pace of. 政治大 of the 11th Central Committee, Deng Xiaoping officially announced the launch of the 立 Four Modernizations, marking the beginning of the reform era and allowing China development in China over the past 35 years. In December 1978, at the Third Plenum. ‧ 國. 學. enter into an international economic relationship with the advanced economies. Attracting many investments from the neighboring countries of Taiwan, Singapore,. ‧. and Hong Kong, China soon became the major production hub where Global Production Networks (GPN) converge for the production and final assembly of goods. y. Nat. sit. exported all over the world. One of the best examples of this interaction between. al. er. io. Asian Tigers, GPNs and the rise of China is embodied in the Foxconn experience.. n. The spectacular growth of Foxconn has mirrored the growth of China and Foxconn’s. Ch. shifting production pattern can be used as a. v i n proxy for U. the development of the. e n g on c hthei spatial development of China in the technology industry in China. Focusing last thirty years, the aim of this paper is to explain how local and national policies, and the invisible hand of the market, addressed foreign investments towards certain areas of China’s vast territory. The analysis of Foxconn’s experience will also provide a good understanding of the linkages between foreign firms’ geographic expansion and their climbing of the industry ladder from labor-intensive industries to more capital-intensive ones. The two processes of industrial upgrading and industrial spatial expansion of Chinese-based national and foreign firms attracted the attention of many scholars that in the last thirty years have produced a massive amount of literature on the topic. If most of that literature is merely descriptive and does not bring any theoretical. 2.

(13) innovation to the discussion, however some very interesting developments have emerged when some scholars adapted the flying geese model to describe this process of domestic relocation. It emerged as an east-west relocation as soon as the CCP opened the first Special Economic Zones (SEZ) along the coast as the only way for an entrepreneur to be linked to international markets and be located in a business environment with modern infrastructures, more conducive to the growth and competitiveness of the private sector. This phenomenon further accelerated as the Lewis turning point approached and the coastal regions became too expensive for the labor-intensive industries. Unlike in the early stage, this relocation proceeded in a south-north and east-west direction. This work will start with the investigation of the flying geese model, and will. 治政大building blocks and provide the of the last thirty years. This is essential to lay some 立 theoretical foundation for the further analysis of the Foxconn experience first, as well make up for its shortcomings by further introducing the Chinese spatial development. ‧ 國. 學. as the discussion of the Chinese economy in general. Theoretical Framework. io. sit. y. ‧. Nat. Chinese inland factory relocation: The Foxconn experience.. n. al. er. 1.1. Foxconn: Empirical data collection. Ch. engchi. i n U. v. Determinants of investment (re)location. Flying geese model. Spatial development. Comparative advantage and favorable policies. Data analysis. Conclusions. Figure 1: Theoretical framework. 3.

(14) 1.2. Research questions The empirical data shows that since the launch of the Open Door Policy in the. late 1970s, the flux of Chinese inward FDI has witnessed some changes at least in terms of geographical destination and main activity of the investee capital. What is the pattern that many international corporations like Foxconn followed? Why is it that way? A large number of scholars have applied the flying geese model to the latest development of Chinese economic growth, more specifically the inland industry relocation. Is it correct to describe this national phenomenon through a model that explains a threefold catching-up process of industrialization in latecomer economies once they enter into an international economic relationship with the advanced economies? 1.3. 立. Methodology. 政治大. ‧ 國. 學. As shown in the Theoretical framework, the body of this work is made of two main sections. One (on the right) discusses, from a theoretical point of view, the determinants of investment through an analysis of the flying geese model and the. ‧. spatial development of China. A selected literature on these two topics makes up the. y. Nat. framework of chapters two and three.. sit. The second section (on the left) follows the spatial and industrial evolution of. er. io. Foxconn through an in-depth analysis of numerical data retrieved from the company’s. al. n. v i n C h been retrievedUfrom the database of the MOEAIC, Additional secondary sources have engchi. Annual Reports and Annual General Shareholders’ Meeting (AGM) Handbooks.. a governmental commission in charge of the screening and approval of outward. investments from Taiwan. In this section, I made also use of academic sources, and news sources. In order to solve some methodological problems, retrieve data that was not available in the aforementioned sources, and verify the accuracy of certain information, I had also to get directly in contact with the company’s deputy spokesperson, Mr. Wen-min Chu (zhu wen min, 朱文敏). The primary information analyzed is the investments that Foxconn made in China during the period from 2002 to 2013. During this period, Foxconn made 282 investments in 126 separate companies in 39 different cities. I am constrained to the period after 2002 because of the lack of complete investment information prior to 2002. My analysis includes both direct investments and indirect investments made via. 4.

(15) wholly-owned or partially owned Foxconn subsidiaries. The official indirect investment figures were taken from the Hon Hai Annual General Shareholders’ Meeting (AGM) Handbook for the respective years. The direct investment figures were taken from the Investment Commission of the Ministry of Economic Affairs (MOEAIC) website. According to Taiwanese legislation 1, Taiwanese entrepreneurs who aim at outward investments and technical cooperation are required, before engaging in any cross strait operation, to submit an application to the MOEAIC and wait for a positive response. Since the Hon Hai AGM Handbooks and the MOEAIC both list investments in American Dollars, all figures reported in this paper, unless otherwise noted, are reported in USD. 1.4. 政治大 The above is the 立proposed research design of this dissertation. However, due. Methodological issues and research limitations. ‧ 國. 學. to some methodological issues and the confined scholarly scope, there are some limitations and restrictions which the reader should keep in mind. In the fist part of the paper, for the first section dealing with the Flying geese. ‧. model, I did not encounter any worrisome problem. The only issue I had to deal with. y. Nat. is that some of the works discussing the model, especially those published before the. io. sit. 1960s are written in Japanese. Given that I am considerably handicapped by a poor. er. Japanese skill, making it impossible to use Japanese-language sources, I resorted to. al. n. v i n C h I selected areUfully reliable and the quality of the 1960 literature, I believe the works engchi. later reformulations of the model. Since the same scholars authored both pre-and-post. discussion won’t be negatively affected.. Also in the first section of the paper, chapter three will only provide a brief overview of the spatial development of Mainland China after 1978. Some might argue that a broad overview of the Chinese economy and politics would be necessary to be able to fully grasp these phenomena, which are all relevant to the main subject of this thesis. However, in order to make this research confined and feasible, this analysis will only look into the main episodes of China’s spatial development that will help explain investment relocation.. 1. Article 35 of the “Act Governing Relations between the People of the Taiwan Area and the Mainland Area” (Taiaān Diqu Yu Dalu Diqu Renmin Guanxi Tiaoli 臺灣地區與大陸地區人民關係條例) (Executive Yuan, 2009).. 5.

(16) For the second section, the methodological issues to solve were many more. Data on indirect investments before 2002 is not available. The earliest AGM Handbook available on Hon Hai’s official website is the Handbook from 2003, which lists investment data from 2002. I encountered the same problem for direct investments before 1991. The Executive Yuan established an investment commission in April 1968 and further upgraded it into the current MOEAIC in October 1973 (MOEAIC, 2005). Despite the long history of the commission, it started recording Taiwanese national firms’ investments in Mainland China only in 1991. In order to work with coherent data, I decided to conduct the quantitative analysis of the investments considering the 20022013 period. Investments prior to 2002 will be addressed through a qualitative. 政治大. analysis based on academic papers and data retrieved from Foxconn official website’s group profile.. 立. Since at time of writing Foxconn has not released the information about the. ‧ 國. 學. indirect investments made in 2014, and that MOEAIC did not provide me with the value of the direct investments, this year will be addressed through a qualitative. ‧. analysis based on the released news and the data provided by the Investment Commission of the Ministry of Economic Affairs.. y. Nat. sit. In the English version of Hon Hai annual reports and AGM Handbooks, the. al. er. io. translations of some Foxconn invested facilities are occasionally misspelled. In order. n. to maintain data coherence and facilitate the data analysis, the misspelled names were. Ch. i n U. v. brought back to the correct spelling. For several other Chinese company names, it was. engchi. not possible to find an official English translation. In those cases the author decided to make use of the pinyin transliteration of the company names, providing the original formula in the footnotes. In the 2008 and 2013 English version of AGM handbooks, in the section reporting the indirect investments made in the years 2007 and 2012, there are two entries by the name “Fu Jin Shun Precision Industry (Shenzhen) Co., Ltd”. The same entries in the original Chinese version of the handbooks were listed with the name “富晉精密工業 (晉城) 有限公司” (fujin jingmi gongye jincheng youxian gongsi) which translates to “Fujin Precision Industrial (Jincheng) Co. Ltd.”. Similarly, a $36,000,000 investment in "Interface Technology (Shenzhen) Co., Ltd.” included in the 2013 English version of the AGM handbook, in the Chinese version is listed under the name “業成科技 (成都) 有限公司” (yecheng keji Chengdu youxian. 6.

(17) gongsi) also known with its English name “Interface Technology (Chengdu) Co., Ltd.”. Since Foxconn’s annual reports specify that the translated version is intended for reference, and that only the Chinese text has legitimacy, in these cases decided to use the data retrieved from the Chinese version of the documents. Further Contacting Hon Hai’s public relations office in Taiwan, they confirmed that the Chinese versions were the correct ones. During the process of data collection, the author also found out that the English version of the 2003 AGM handbook does not list any investment made in the preceding year; in this case I had to refer to the original Chinese version of the handbook. Similarly in the 2011 AGM handbook, in the section reporting the company’s new indirect investments in Mainland China during the preceding year,. 治政大 of the 2011 AGM handbook. The correct data were retrieved from the Chinese version 立 A last inaccuracy in Foxconn’s documents is in the amount of the 2012 investment in erroneously listed the 2009 investments, already listed in the 2010 AGM handbook.. ‧ 國. 學. “Gds Software (Shenzhen) Co., Ltd.”. In the English version of the 2013 AGM handbook, the listed amount is $10,000,000 instead of the $100,000,000 reported. ‧. correctly in the Chinese version.. I am also aware that my analysis is incomplete in regards to three issues.. y. Nat. sit. First of all I did not take account of the Chinese facilities acquired when Hon Hai. er. io. merged with Taiwanese-based companies. One example is the case of “Taiwan Premier Image Technology Corporation” merged by Foxconn in 2006 (Honhai,. n. al. Ch. i n U. v. 2013b). In the MOEAIC record of Taiwanese national firms’ investments in Mainland. engchi. China, Foxconn’s investments in newly acquired subsidiaries are listed under the name of the acquired company instead of under Hon Hai or Foxconn. A second limitation of this research is that it can only explain investment relocation as a result of the combined action of market self-regulating mechanisms and government control. The analysis is unable to separate between the two causes and assess their relative impact on investment decision. A third limitation of this work is that it concentrates on only one company, Foxconn. For a better legitimization of the results of this thesis, it would be necessary to extend the study to companies other than Foxconn and make an international comparison between Taiwanese, Singaporean and Hongkongese companies, which all invested in China in the same years.. 7.

(18) I am aware that these are three relevant points that could have provided new perspectives on the topic, however, doing justice to them would require too much time and space. Therefore, the author of this thesis chose not to address them. Yet, an assessment of the relative impact of the market self-regulating mechanisms and government control over investment relocation, as well as the expansion of the research to other companies other than Foxconn, would be very relevant to include in future research. 1.5. Foxconn in the literature Before moving on to the discussion of the heart of the paper, I believe the. literature dealing with Foxconn deserves to be presented in detail, in order to understand how different scholars have approached the topic, and understand what is. 政治大 Technology 立 Group is the trading. the added value of this work. Foxconn. name of the Taiwanese. ‧ 國. 學. multinational electronics manufacturing company Hon Hai Precision Industry Co., Ltd., headquartered in the Tucheng Industrial Park, Tucheng Dist., New Taipei City, Taiwan. Founded on February 20, 1974 (Foxconn Electronics Inc. 2013a) with an. ‧. initial investment of US$7,500 (Foxconn Electronics Inc., 2013b), the company has. y. Nat. grown in size and revenue - in 2014, it ranked 32nd among Fortune Global 500. io. sit. (Fortune, 2014) - and has attracted academics’ attention. Despite its long history. er. however, Foxconn remained unknown to the public for a long time, and it was only. al. n. v i n C Asian scholars started to showhinterest e n gincFoxconn h i Uin the early 2000. In 2002 Zhang. within the last few years that it has started to gain massive international attention.. Xuyi published the book A Three Hundred Billion Legend: Terry Gou’s 2 Honghai. Empire (sanqianyi chuanqi: guotaiming de honghai diguo, 三千億傳奇：郭台銘的鴻海帝國 ), which describes Guo’s personality, presents his most successful entrepreneurial strategies, and follows the first steps of Foxconn growth and international expansion. As pointed out by Frost and Burnett (2007), the western media became aware of Foxconn only four years later when the article iPod city (Joseph, 2006, June 11) was published on the English newspaper Mail on Sunday. The editorial traces the journey. 2. Guo Tai Ming (Guo Tai Ming 郭台銘) also known as Terry Gou, is the founder and chairman of Foxconn. For more information about Mr. Gou’s personal life refer to Balfour and Coulpan (2010, September 13).. 8.

(19) an iPod makes from R&D to production, and reveals the harsh working conditions in the Chinese factories where the devices were assembled. Since the early 1990s academics and activists of the anti-sweatshop movement drew the attention to the awful working conditions in the Chinese plants where companies in the apparel industry, especially Nike, outsourced manufacturing. Hightech industries however remained out of the discussion. This lasted until 2004 when the Catholic Agency for Overseas Development (CAFOD, 2004) released a report that lifted the blanket of secrecy. The first lines of the report states: Its products may embody the latest in high technology, but labour standards and conditions in computer manufacturing can be appallingly low. Many stages of computer production are carried out by low-skilled, low-paid workers - most of them women - in developing countries. But unlike their counterparts in the clothing and footwear sector, computer companies have. 政治大 This and other similar works set the stage for the publication of the Mail on Sunday’s 立 piece, and the development of the literature regarding Foxconn in general. thus far escaped scrutiny on labour issues.. ‧ 國. 學. Given this background, if we add that between 2007 and 2013 around twenty workers committed suicide in one of the company’s plant in Shenzhen (Barboza, 2009,. ‧. July 26) (Lau, 2010, December 15) (Mozur, 2012, December 19) (Yu, 2013, May 2),. sit. Nat. workers poor (by western standards) working conditions.. y. it is not surprising that most of the literature dealing with Foxconn gives attention to. er. io. Besides the everyday media coverage, the topic came also into view in a large number. al. v i n U.S. based multinational corporations, outsource production to Chinese companies Ch U i e h n c g that violate the Chinese workplace law and the international labor standards. The n. of academic dissertations. Josephs (2014) uses Foxconn as case study to show how. Students and Scholars Against Corporate Misbehavior revealed the actual working and living conditions of workers at Foxconn (SACOM, 2010, October) and showed how workers are generating huge revenues for Foxconn while the company does not comply with the labour laws or the code of conduct (SACOM, 2011, September). Similarly Lucas, Kang and Li (2013) made an analysis of workplace dignity using Foxconn as a proxy, and distinguished between an appropriate strategy for profit maximization and regimentation, under which workers’ dignity and well being are of no concern. Other scholars concentrated on student interns (Su, 2010) and trade unions (Rulliat, 2010) (SACOM, 2010) (Good Electronics, 2013).. 9.

(20) Arguably are Ngai and Chan, the two authors who provide the most in-depth and wide ranging analysis of Foxconn worker’s condition. They trace the corporate growth of Foxconn in China (2012) and describe Foxconn workers’ condition, suicides and student interns as manifestations of two features of the modern Chinese Economy. The first one is the state-promoted development model that sacrifices dignity for corporate profit in the name of economic growth; the second one is the global production chains of the consumer electronics that aiming constantly at reducing costs and maximize profits, is the source of the pressure placed on Chinese workers (2010) (2012) (2013). Besides this literature, as Foxconn became widely known by people outside the industry, a growing number of scholars started scrutinizing the company from a. 治政 single investments, or大 including. business point of view; most of these studies however have a too tight or too wide focus. Concentrating on. 立. them in the broader. discussion of the MNCs, researchers do not provide an understanding of the so-called. ‧ 國. 學. Foxconn experience as a whole.. Chiang and Yan (2015) use the case study of Foxconn to present the concept of. ‧. entrepreneurship and illustrate how business initiative changes in the three stages of company formation, growth and transformation into global corporation.. y. Nat. sit. Other works address the most recent developments, such as the investments in. al. er. io. building electric cars (Kan, 2014, September 4) or the introduction of industrial robots. n. as a way to save money on labor (Kan, 2013, July 26; 2015, February 27) (Larson,. Ch. i n U. v. 2012, July 16) and limit the labor shortage problem reducing dependence on. engchi. permanent employees (Qiao, 2013).. A smaller number of scholars, as already said, looked at Foxconn’s investments with a wider focus, recognizing that its industrial development had many similarities with that of other Taiwanese companies that invested in China. Among these Chen (2011) analyzed cross-strait investment possibilities before and after signing the ECFA agreement. Others instead, traced the investment pattern of Foxconn and other Taiwanese companies, showing how their outward FDI were the main driver of the economic growth of Kunshan (Chen, 2008) (Chen, Melachroinos, and Chang, 2010) and Chongqing (Huang 2011). Still others looked at Foxconn investment diversion and Industrial Relocation.. 10.

(21) Yang explored the redistribution of Taiwanese IT investment from the PRD to the YRD, and starting from the concept of open region, discloses the exogenous factors that together with national state and local initiatives, explain the PRD-YRD regional development and inter-regional competition for the in-flows investment (2009). Later In 2013 Yang further addressed this topic looking at the emerging inland factory relocation/expansion, which he explains as a strategy that TNCs use to rebalance between exports and domestic sales. Asei (2014) in a similar study of the inland relocation, focused on the two dynamics of agglomeration and dispersion.. To summarize we can say that Foxconn has been widely discussed in many academic research papers, and that most of them have a sociological slant rather than. 治政大 of Foxconn workers, pushing China, scholars focused the most on the labor condition 立 the company’s very interesting business expansion, diversion and relocation into the. economical. Influenced by the high rate of suicides that afflicted plants in Mainland. ‧ 國. 學. background. Even though some academics addressed these aspects, their focus was too tight or too broad with the consequence that the available literature falls short of a. ‧. coherent description of Foxconn geographical and product expansion. Bridging this gap is the very goal of this paper.. y. Nat. sit. In order to do that, I need to momentarily shift the focus away from Foxconn. al. er. io. towards the greater Asia Pacific Region. After all Foxconn’s investment into. n. Mainland China can be considered as subset of the Taiwanese investments, which in. Ch. i n U. v. turn are included in the wider group of investments flowing towards China from the. engchi. Asian Tigers. Further including Japan into our discussion about the allocation of foreign direct investment in the region, we enter into the widely known subject of the Asia Pacific regional development. Resorting to the Flying Geese model, which provides one of the best explanations of the process of East Asia regionalization3, we can trace the path that FDI have followed in their consecutive relocation from Japan towards NIEs, South East Asia and recently China. Next section is dedicated to the analysis of the Flying Geese Model.. 3. In IR, regionalization refers to “non–state-driven—usually market-driven—processes of integration” (Kim, 2004) that therefore “develops from the bottom up through societally driven processes coming from markets, private trade, and investment flows, none of which is strictly controlled by governments.” (Hoshiro, 2012).. 11.

(22) 2. FLYING GEESE PATTERN OF ECONOMIC DEVELOPMENT. The flying geese paradigm is a doctrine of industrial development in latecomer economies of Japanese Origin. The model was originally developed in the early 1930s by the Japanese economist Akamatsu Kaname4 (1896-1974), but after his death, it has been further rehashed by numerous scholars who, in different times, revisited and extended one or more parts. This section, addressing only some key aspects of the FGM, should be regarded as an introduction to the model, where the Akamatsu’s original formulation is updated with few key concepts by Kojima and Ozawa, the Japanese economists who, according to the author, brought the most valuable contribution to the original. 治政 neither tries to be an overarching presentation of 大 all the different formulations , nor 立 claims to assess the empirical validity of the model. formulation adapting it to the latest developments of the world economy. This chapter 5. ‧ 國. 學. 2.1. The Original FGM. The flying geese paradigm of economic development is a theory that explains. ‧. the economic growth of underdeveloped countries once they enter the international. y. Nat. economy (Akamatsu, 1961). Professor Akamatsu Kaname coined the term “Ganko-. io. sit. Keitai” (gankō keitai がんこうけいたい) in the mid-1930s and then translated it into. al. n. the early1960s.. er. “wild-geese-flying pattern” when he presented his theory to the international arena in. Ch. engchi. i n U. v. The name of the model was inspired by the shape of three time-series curves indicating import (I), domestic production (P) and export (E) of manufactured goods, resulting from the statistical study of the prewar Japanese economy and industrial development since the Meiji era (Akamatsu, 1962). As shown in a schematic illustration in Figure 2, the shape of these curves is close to that of a symmetric Vshaped flight formation of migratory birds.. Wild geese fly in orderly ranks forming an inverse V, just as airplanes fly in formation.. 4. For Akamatsu’s detailed biographical information refer to Korhonen (1994). For an exhaustive description of changing interpretation of the flying geese model, refer to Schröppel and Mariko (2002).. 5. 12.

(23) Volume. Import production export. t1. t2. t4. t3. time. Figure 2: Fundamental pattern. 2.1.1. Fundamental pattern The sequence of import, domestic production and export, makes up what is. 政治大 industry grows following the sequential order of I-P-E from t to t . 立. known as “fundamental” pattern and describes how in a developing country a single 1. 4. In t1, the underdeveloped economy enters for the first time the international. ‧ 國. 學. economy, manufactured consumer goods are imported into the domestic market from the advanced countries, and some special native handicrafts are exported in exchange. ‧. for them.. y. Nat. In t2, starts the domestic production of the previously imported consumer. sit. goods; these are sold in the domestic market where increasing consumption makes. er. io. their production profitable. At the same time, the economic relation with the advanced. al. n. v i n C h goods start beingUimported. other side, machinery and capital engchi. countries changes; if on one side the import of the consumer goods decreases, on the. A third stage starts in t3. Domestic consumer goods industry turns into mass. production and starts exporting to overseas markets; first to underdeveloped nations, and later also to the developed ones. By this time starts also the production of hitherto imported capital goods which brings about a decline in the import from the advanced countries. Finally at t4, as the country has attained the same standard of the advanced countries, in the specific industry it is no longer less advanced. Capital goods are now exported but since consumer goods are produced in other developing countries, the production and export of these products starts to decline. Consumer goods had been imported from advanced countries in t1, domestically produced and exported in t2 and. 13.

(24) t3, and now they are imported again from less advanced countries. This phenomenon is known as “reverse import” or “boomerang effect” (kojima, 2000). 2.1.2 Variant pattern Noticing that both consumer goods and capital goods vary in terms of kind and quality, Akamatsu added a second pattern to the one just presented. This one discusses industry upgrade from consumer goods to capital goods and from simple to refined products and assesses that the sequence of I-P-E occurs not only in the development from consumer goods to capital goods, but also from simple goods to elaborate goods.. Volume. 政治大. 立. Import. Production. ‧ 國. 學. Export. t4. t5. t6. time. n. al. er. io. sit. Nat. Figure 3: Variant pattern. y. t2 t3. ‧. t1. Ch. i n U. v. Figure 3 shows how the three I-P-E curves of the fundamental pattern can be. engchi. further decomposed into simple and refined goods maintaining the symmetric Vshaped flight formation pattern. For a certain industry, crude goods are imported first (t1), than produced domestically (t2) and then exported (t4). Meantime, the import of these goods declines but the import of elaborate goods rises (t3) in line with the increasing national income. At t5 the level of the national production raises from crude to elaborate goods and at t6 the same kind of upgrade happens in the export. Kojima (2000), who named this pattern “variant”, further developed it introducing a theoretical model (Kojima Model I) in which accumulation of physical and human capital is the input for an industry to diversify its products and rationalize its production methods. The process of intra-industry diversification leads to the development of new products within an existing industry and superior mode of production; inter-industry pluralization leads to the development of wholly new 14.

(25) industries. Over time, companies adopt these two strategies in their business plans as medium term and long term business goals, respectively (Tachiki, 2005). 2.1.3. Advanced - less advanced pattern From the observation of the economic dynamics in the Asia Pacific region,. Akamatsu further expanded his model with a third pattern. According to this third formulation, the countries of the world progress at different speed, some are dormant and some make leaping advances, their trajectories often intermingle with each other, and the ranking of every country may change overtime. Despite that, a snap-shot of their flight formation will show that they advance in a Vshaped pattern, with the advanced countries ahead of the less advanced ones, as shown in Figure 4.. 立. 政治大 US. ‧ 國. 學. Japan. Asian Tigers (NIEs ). ‧. Tiger Cub Economies (ASEAN4). sit. y. Nat. China. n. al. er. io. Figure 4: From advanced to less advanced pattern:. Ch. engchi. i n U. v. Moreover the leading geese transmit FG growth stimuli to the following geese, aligned successively behind according to their different stages of growth. Kojima (1973, 2000) further developed this third pattern pointing out that the FG stimulus of industrialization is transmitted from a leading country A to a following country B through FDI, which transfers capital, superior technology and managerial skills. FDI facilitate structural upgrading and economic growth (Ozawa, 1992). He distinguishes three main types of direct investments; i.e., natural resource oriented, labor oriented and market oriented. In the first case the FDI results from the desire to obtain unavailable commodities; in the second case, it results from the need of cheaper labor, and in the third case, the investment is induced by the need of entering a foreign market.. 15.

(26) Kojima further distinguish between trade-oriented and anti-trade oriented FDI, but for our discussion it is enough to say that according to the FGM, FDI are taken according to the relative comparative advantage of countries in their respective stage of development, and not merely for the profit maximization of the single company. In other words industrial transmigration happens according to “comparative advantage recycling” dynamics (Cutler, Berri, and Ozawa, 2003). 2.1.4. A leading growth sector Terutomo Ozawa is another Japanese economist that has made a number of. original and significant contributions to the flying geese theory. Besides exploring the financial dimension of the flying geese growth model (1999, 2001), he also merged Akamatsu’s first and second pattern with the Schumpeterian theory of economic. 政治大 material production and 立technological progress, the economy in the long term grows growth (Ozawa, 2004b). According to Schumpeter, despite a constantly increasing. ‧ 國. 學. in trend which has a sinusoidal form, and each economic cycle is driven by technological innovation (Schumpeter, 1934).. Ozawa’s reformulated version of the FGM is able to link every stage of the. ‧. industrial upgrading to a specific industrial sector, which acts as main engine of the. y. Nat. structural advancement.. io. sit. Ozawa (1992, 2002, 2004a) distinguishes five major economic cycles. The first one to. er. appear was natural resource intensive and labor intensive and has its best. al. n. v i n C h processing industries capital intensive and natural resource with steel and chemical as engchi U representative in the cotton textile. This one was soon followed by the physical-. best examples. Then a third and fourth stage are those of the automobiles (assembly line based) and microchips and computers (R&D driven), respectively. The final stage is achieved with the information technology. A paper from the investment house Allianz (2010) suggests that most recently we are in the middle of “the sixth Kondratieff”, a rising wave driven by new green technologies like renewable energy, biotech, and health.. 16.

(27) The merge of these six economic cycles with the concepts of intra-industry diversification, inter-industry pluralization and transmission of FG growth stimuli, is represented in Figure 5. Here the sinusoidal wave a la Kondratiev represents the economic cycles, the horizontal axis represents the climb up the ladder of industrial upgrading, and the vertical axis represents the transmission of FG growth stimuli. Figure 5: Reformulated model. 3. Goose. 2. Latecomers. China. 立. ASEAN 4. ‧ 國. ‧. io. Automobiles. al. Microchip and computers. sit. y. Nat. Steel and chemical. Textile. I.T.. er. Japan. 學. NIEs. 政治大. Time Green technology. n. v i n C hthat when economic We have already said e n g c h i U growth brings about change the. comparative advantage dynamics as rapid increases of labor costs or home currency appreciation in the foreign exchange market, low-tier industries that have lost competitive advantage are likely to move to other countries. This reformulated model tells us that the first industries to leave the newly industrialized countries are those most natural resource intensive and labor intensive. These will be followed by the physical-capital intensive and natural resource processing industries, and so on. From the observation of Japanese industries, Ozawa also noticed that the processes of intra-industry diversification and inter-industry pluralization lead to industrial fragmentation. In a multi-layered industrial structure, large, medium and small firms coexist, and every level makes use of different technologies and has different labor costs. This vertical differentiation offers to developing countries the. 17.

(28) opportunity to accommodate not only the low-tier industries but also the low-end segments of high-tier industries, according to their wages and levels of technological sophistication. For instance, we can say that when China has a comparative advantage in the labor-intensive industries and attracts investments in the textile industry, at the same time it can host the lowest-end segments of the R&D driven industries. 2.2. Flying Geese Pattern of domestic industrial relocation. From the above presentation of the flying geese model, we have understood that the industrial upgrade of a developing country like China is a multidimensional process with three main features: I.. FDI flock into a country that enters the world economy to benefit from different comparative advantage positions. In most cases the industries that. 政治大 advantage while the receiving country is gaining it, or is expected to gain it. 立 The national industrial population does not remain static; conversely it is able invest are those in which the investing country is losing comparative. 學. ‧ 國. II.. to climb up the ladder of industrial upgrading stage by stage. This is done absorbing industrial knowledge and basic technologies at first, and then. ‧. drawing upon the processes of intra-industry diversification and interindustry pluralization in a later phase. This way the developing country will. sit. y. Nat. accomplish the scaling of the ladder of industry, starting from labor-intensive low-tier industries, and moving towards more capital-intensive high-tier ones.. io. The climb up of the industrial upgrading ladder is bound to change the. er. III.. al. n. v i n to investment C relocation. the multi-layered and vertically differentiated h e nGiven gchi U. comparative advantage dynamics of national economic scenario and will lead. industrial structure of a newly industrialized country, a developing country that follows behind, is going to receive not only the low-tier industries, but also the low segments of the high-tier industries that have lost comparative advantage.. Existing literature about the Flying Geese Model mainly applies these three points to the study of the pattern of industrial relocation across countries. Some scholars, however, have adopted the model to describe the phenomenon of factory relocation that is taking place within the Chinese national borders (Cai, Wang and Yue, 2009) (Qu, Cai and Zhang, 2013) (Ruan and Zhang, 2014). These studies were founded on the observation that Japan and the Asian tigers were small economies with a homogenous distribution of resources while China is a large economy with 18.

(29) resources heterogeneously distributed. Given China’s continental size, significant regional differences appear naturally in geography and in natural resource endowments (Démurger, 2000). Moreover the gradualism of the Chinese reforms led to severe regional disparities in economic development (Tsui, 1995) (Kanbur and Zhang, 1999; 2005), making the differences in resource endowment among Chinese regions as substantial as those among countries. If it is true that the regions of a big country act as independent economies, the flying geese model should be fully applicable to the process of investment relocation that is taking place within China. Recent data about wage levels in China support this thesis. Due to the above-mentioned regional disparities in economic development, China. 治政大 of setting. does not have a unified minimum wage. Instead, the responsibility. 立. governments. Typically, the provincial government will announce wage “classes”. will pick the level that best suits their. al. minimum wage classes for 2013, ranging. er. io. For example, Zhejiang province set four. sit. y. Nat. development.. ‧. for the region and then local governments. 學. ‧ 國. minimum wage levels is left to local. n. v i n Ch i U 6: Minimum wages across e n g c hFigure province; top tier cities such as Hangzhou China (China Briefing, 2013) from “Class A” to “Class D”, across the and. Ningbo. chose. the. “Class. A”. minimum wage (1,470 RMB per month) while less developed cities such as Jiaxin and Jinhua chose the next highest wage level, “Class B”, which is 1,310 RMB per month (China Briefing, 2013). The wage levels shown in Figure 6 reveal that the high wage levels present on the eastern coast, especially in the YRD and Bohai Bay regions. The wage levels in the Central region are comparatively lower: the monthly wage in Shenzhen, the highest in the country, is 1,500 RMB per month while the monthly wage in Sichuan ranges from 800 to 1,050 RMB per month. The same kind of disparity is found also in the levels of land price. Along with China’s real estate boom, industrial land price in some cities is even more expensive than that in the United States. For instance, industrial land costs $11.15 per square 19.

(30) foot in the coastal city of Ningbo, $14.49 in Nanjing, $17.29 in Shanghai, and $21 in Shenzhen. The national average is $10.22 per square foot (Sirkin, Zinser, and Hohner, 2011). For this reason we can say that labor intensive firms in China, tend to relocate to other regions to lower the expenditures and remain competitive on the market. A major mistake made by the scholars who apply the FGM to the Chinese inland investment relocation is considering only the shift from the costal areas to the hinterland that started only few years ago. Actually, as further shown in the next sections, this is only the last step of a process that started as early as the years 1980s and that developed in three different steps during the last thirty years. If we consider this whole process we see that despite the large differences in factor endowment among Chinese regions, nevertheless, the investment relocation taking place within. 政治大. China has fundamental differences from that described by the original flying geese model.. 立. For instance, Chen (2011) finds out that electronic-related agglomeration/cluster can. ‧ 國. 學. be found both within the Yangtze River Delta and Pearl River Delta. However, despite the PRD was invested earlier, the technologies adopted by Taiwanese. ‧. companies in the Shanghai area are more advanced than those adopted by industries located in the Pearl River Delta.. y. Nat. sit. Fang, Wang and Yue (2009) refer to this characteristic of the Chinese industrial. al. er. io. upgrading using the term “regional leapfrogging”. According to them, the main. n. reason behind this phenomenon is the tight relation that in China exists between local. Ch. i n U. v. governments and enterprises, which distorts comparative advantage dynamics.. engchi. According to them, the investment decisions of enterprises that receive assistance and subsidies are no longer imposed by the comparative advantage dynamics, rent seeking is preferred to innovation, industrial upgrading is postponed and the flying geese-type of development cannot happen. Since in the 1990s in the Shanghai area land price and minimum wages were higher than those in the PRD, we see that the flying geese model fails also to explain why in that period many entrepreneurs, including Guo Tai Ming, decided to invest in the area. In the last forty years, trade liberalization in developing countries brought about an increase of trade among countries that were – economically speaking – very different one from the other. As explained by the Flying Geese model, this NorthSouth trade arose from countries’ will to take advantage of the differences in their 20.

(31) comparative advantage. This is of course true, however, being aware that the oxymoron “Socialist Market Economy” correctly describes a country in which central planned economy and Adam Smith’s invisible hand coexist, I believe the role of Chinese central and local governmental policies should be added to the market selfregulating behaviors just presented, and this way make up for the shortcomings of the flying geese model. Indeed, the flying geese model takes account of the fact that the state plays an active role in the economy. Akamatsu (1961, 1962), Kojima (2000), Ozawa (2002, 2004a) and Stigliz (1996), all assert that governments undertake key responsibilities for the promotion of economic growth and that their intervention is one of the factors that made the Asian miracle possible. However, what they refer to is the so-called. 治政大 its ability to coordinate the correction of market failure (Kasahara, 2013). Despite 立 investment and ensure national development, this kind of intervention could not be as. “selective intervention” of the developmental state whose main justification was the. ‧ 國. 學. far-reaching as that of a planned economy like China.. We can conclude that although the flying geese model is a powerful tool, it is. ‧. not able to grasp all the different shades of the phenomenon we are studying. Next section will present the major governmental policies that in the case of China. y. Nat. sit. have affected investment allocation, directing investments towards different areas of. n. al. er. io. the vast Chinese territory, according to the national political and social needs.. 3 3.1. Ch. GOVERNMENTAL POLICIES. engchi. i n U. v. Spatial development China Planning is a central characteristic of centralized, communist economies, and. five-year plans established for the whole country usually contain detailed guidelines for the economic development of all the regions. With China’s transition from a Soviet-style planned economy to a socialist market economy, these plans have gradually shifted from setting exact production targets to being a guideline for the nation’s short-term development. Despite this background, however, five-year plans together with other major policies still have a strong impact on investment allocation. For this reason this section is dedicated to the analysis of the spatial development of China, that is the gradual development of different regions brought about the launch of national policies. These policies, at different times, directed investments towards. 21.

(32) different areas of the vast Chinese territory, sometimes also altering the existing comparative advantage dynamics. 3.1.1. 1980s: Pearl River Delta The roots of the Chinese economic miracle can be traced back to the late. 1970s when Deng Xiaoping adopted the Four Modernizations. Facing the urgent need of economic development, Deng decided to ease off the Maoist approach to foreign trade based on the Soviet model of Foreign Trade Companies and the clear separation between the national and the international economy. In order to attract foreign investments, Deng announced an “open door” policy to the advanced countries of the world and started a series of reforms to expedite the process. A few months before the 3rd Plenary Session of the 11th Central Committee. 政治大 with Chinese firms of the 立Pearl River Delta and the first export-processing zone was. some firms in Hong Kong were already allowed to sign export-processing contracts. ‧ 國. 學. established in January 1979 in Shekou. Later that year, the Sino-Foreign Joint ventures law was promulgated and four Special Economic Zones (SEZs) were created: Shenzhen, Zhuhai, Shantou and Xiamen. These SEZs offered special incentives in. ‧. taxation, land leases, rent and wages to attract Foreign Direct Investments. Overseas. y. Nat. investors were provided with a wide array of preferential policies including cheap. io. sit. land and tax exemptions. A few years later, in April 1984, the PRC further deepened. er. the reform by opening 14 coastal cities to overseas investment: Beihai, Dalian,. al. n. v i n C h and Zhanjiang. Shanghai, Tianjin, Wenzhou, Yantai e n g c h i U Also introduced during this time Fuzhou, Guangzhou, Lianyungang, Nantong, Ningbo, Qingdao, Qinhuangdao,. were the first Economic and Technological Development Zones (ETDZs), which. concentrated on the development of knowledge - and technology - intensive enterprises. Through a simple analysis of the geographical distribution of the abovementioned economic zones, it is easy to conclude that Chinese reformers led by Deng were eager to attract investments from nearby Hong Kong, Taiwan, and the Chinese diaspora in the Southeast Asia. Given the political instability of the leadership at that time and the lack of a legislative framework that could reassure foreign investors over the safety of their investments, China was not ready yet to target the investment of the Western firms.. 22.

(33) The launch of the open door policy coincided with what in Ozawa’s reformulation of the Flying Geese model is called a “period of industrial upgrading” (Ozawa 2002). Taiwan, Hong Kong, and Singapore, in accordance with the Flying Geese model, started climbing the industrial ladder in the wake of Japan, ready to themselves become the leading geese of Asian economic and industrial development. The Chinese quest for foreign money and technology fit with the need of the Asian Tigers of fragmenting the production process at home and hand off the low tiers of the industrial ladder to lower wage locations in neighboring countries. The positive conjunction of supply and demand paved the way for foreign firms landing in China. 3.1.2. 1990s: Yangtze River Delta In the 1990s, Beijing, backed up by the great success of the economic reforms. 政治大 more efforts toward attracting 立 foreign businesses. Through the establishment of the in the Pearl River Delta, decided to hasten the marketization of the economy and put. ‧ 國. 學. Shanghai Pudong New Area in 1992, the government decided to build a second economic growth engine, and make Shanghai become the center of an economic growth circles within a 600km radius. The spread effect would first affect nearby. ‧. Suzhou and Kunshan, then Hangzhou and Nanjing, and finally the whole of Zhejiang. y. Nat. and Jiangsu provinces. Being the nucleus of the regions development, Shanghai is. io. sit. also known as the Dragon’s Head of the YRD. Helping Shanghai become an. er. economic center, Chinese leaders had the clairvoyance of easing the natural process. al. n. v i n C h for neighboring Shanghai was already a benchmark e n g c h i U cities. In the following years and. of money flowing into Shanghai. In the 1840s, during the Opium War period, especially after 1978, those cities adopted the strategy to “get close to Shanghai” firstly to enjoy the high amount of resources poured into Shanghai during the planned economy, and then to attract investments (Zhang and Fu, 2009). This process of agglomeration centered on Shanghai continued along the years and has made a further step in 2008 with the inauguration of the 36Km cross-sea bridge connecting Ningbo with Shanghai and the construction of many other infrastructures such as the 200km/h Nanjing-Shanghai express railway and the connection of a “three-hour city circle” highway network to connect Shanghai with sixteen major neighboring cities. With the development of a transportation network and communication facilities linked to Shanghai, more FDI were encouraged, and this in turn promoted further development and the creation of a virtuous circle.. 23.

(34) Unlike in the 1980, the new round of investment that flocked towards the Shanghai area did not coincide with a second period of industrial upgrading. As pointed out by Tuan and Ng (2002) in the 1990s, the Pearl River delta, from a comparative advantage point of view, was still a more favorable investment area. Despite that, Guangdong felt the competition of the Yangtze River delta and lost a large number of investments. In this case is the establishment of the Shanghai Pudong New Area to bring momentum to regional growth and this way explain investment attraction. 3.1.3. 2000s: Bohai Rim After the Pearl River Delta and the Yangtze River Delta, China targeted the. Bohai Rim as the new hotspot of economic growth. The Bohai Rim region is the. 政治大 it provides economic 立 radiation effects to Shanxi, Liaoning, Shandong and Inner Liaodong Peninsula, Shandong Peninsula, the Bohai Sea coastal economic zone, and. ‧ 國. 學. Mongolia in the East (Jin and Qi, 2010). Located in the Northeast area of the country, the Bohai region is rich of natural resources such as oil, gas, coal and minerals, and has a unique geographic position. The area enjoys proximity to Japan and Korea, the. ‧. high-quality education of Beijing to provide high-quality workers, and the high. y. Nat. number of scientific research institutes and R&D centers in Tianjin provide a. sit. knowledge spillover effect.. er. io. In 1999, backed up by the region’s great potential, Chinese central. al. n. v i n C project did not take Five-Year Plan, however the h e n g c h i U off immediately. The area was government included the creation of a Bohai industrial belt among the goals of the 9th. suffering from shortages in the sharing of the basic infrastructures, a non-regionally integrated industrial chain, inefficiency of the regional financial system and the lack of a leading economic center (Rong, 2012). The lack of infrastructure was solved by setting up a comprehensive network of sea-land-air transportation web that is rapid, convenient and widespread. As of today, the region hosts more than sixty ports, ten major airports, and many kilometers of high-speed railways and expressways linked into a network. In 2003 and 2004, the Chinese Central Government Departments and the State Council further announced the so-called Northeast China Revitalization policy, and provincial leaders signed the “Bohai Sea Region Cooperative Framework Treatment” (Rong, 2012). Finally in 2006, with the establishment of the Binhai New Area in. 24.

(35) Tianjin, the Bohai region was provided a leading economic center that could do what Pudong did for the YRD and Shenzhen did for the PRD. In the mid-2000s the Bohai Rim finally provided a favorable and attractive environment and started attracting many new investments. Once again is the launch of far-reaching national policies to bring momentum to the Bohai Sea region's rapid economic development, attracting investments that might have been directed towards different destinations. Developing Tianjin into a third economic hub (after Shenzhen and Shanghai Pudong), the government started a growth pole where the incoming money and firms become themselves attractors for more money and new firms. 3.1.4. 1010s: Western Development. 政治大 the world, overtaking the. In 2010, the so-called socialist market economy became the largest. 立. manufacturing economy in. primarily service-driven. ‧ 國. 學. economy of the United States (Meckstroth, 2013) (UN 2013). Furthermore, in 2013 China’s GDP reached 9.95 billion US dollars (IMF, 2013) (UN, 2013) making it the world's second largest economy by nominal GDP after the United States, and starting. ‧. from 2013 is also the world's largest trading nation (Monaghan, 2014).. y. Nat. Noting the rapid development of the economy as a whole, we must be careful. io. sit. not to equate the country’s GDP growth rate with per capita economic growth. As. er. already explained, the whole of China has not benefitted equally from the economic. al. n. v i n C U while Western and Central Chinese miracle is actually anhEastern e n gChinese c h i miracle,. reforms. What the 1978-2010 spatial development just presented shows that the. China have played the role of provider of cheap migrant labor.. In order to help develop the poorer central and western parts of the country that had not enjoyed the economic benefits of China's opening up to the outside world, an “Open up the west” (xibu da kaifa 西部大開發) campaign was initiated by Jiang Zemin and Zhu Rongyi in 1999 (Wallin, 2006), a milestone in the nation's economic development. Since then, more than $52 billion has been invested in major infrastructure projects in the western region, one of the biggest economic regeneration programs of all time. These included flagship projects such as the 4,000 km WestEast natural gas pipeline project, the second phase of which was recently opened. It also included the Qinghai-Tibet railway, completed in 2006, which runs for almost 2,000 km. Another major project was the extension of Xianyang Airport in Xi'an.. 25.

(36) Companies relocating also benefit in some areas from a lower rate of corporate tax of 15 percent instead of the usual 25 percent (Moody Moody, Hu, and Ma, 2011). Given the vastness of a region that contains about 70% of Mainland China's area, the creation of a Central China growth engine can have neither district nor single city dimensions. With the creation of the Cheng-Yu Economic Zone (Chengdu-Chongqing) and in the wider West Triangle Economic Zone (Cheng-Yu plus Xian) in a multi-city and multiregional scale, western China was finally provided with its growth engine. Just before the country’s entry into the WTO in 2011, the National Development and Reform Commission approved the creation of the triangle, proposed by Chongqing in 2009 and agreed by Chengdu and Xian. The plan aims to integrate business, especially logistics, between the cities to stimulate economic growth (Zhang, 2009).. 治政 (Zhongbu Jueqi Jihua 中部崛起計劃 ) and 大 supported by development of a 立 transportation network ranging from rivers to roads, air and rail, the previously. With the further launch in 2004 of the “Rise of Central China Policy”. ‧ 國. 學. backward and isolated Chinese hinterland has started receiving an unprecedented amount of new investments. Thanks to those infrastructures, the companies that are. ‧. now willing to invest there are not only those aiming at a share of the internal market, but also those export oriented. An appropriate infrastructure that facilitates. y. Nat. sit. communications between provinces and with the outside world is vital to compensate. al. er. io. for geographical constraints that impede investments. If infrastructures were essential. v. n. for the Hongkongese to invest in the PRD (Tuan and Ng, 2002), they become the sine. Ch. qua non for the central regions to attract FDI. 3.1.5. engchi. i n U. Growth engines In short, what I have presented as China’s spatial development, is the creation. of economic “growth engines”, which spark regional economic growth. In the 1980s Shenzhen became the first engine for the PRD when many foreign companies set up their operations there following the launch of the economic reforms. A few years later, new national policies pulled FDI northward toward the YRD, where Pudong became a second engine in the 1990s. At the beginning of the new century renewed political efforts decided to let the northeast regions develop building in Binhai the third engine. Nowadays, thirty years after the adoption of the Open Door policy, we are finally witnessing the engineering of another masterpiece. Now that the costal economic engines are running out of fuel, namely cheap labor and cheap land, thanks to. 26.