China and the Multinationals

China and the Multinationals

International Business and the Entry of China into the Global Economy

New Horizons in International Business series

Edited by Robert Pearce

This original and important book explores how the interaction between China and multinational enterprises has the potential to affect the future of the Chinese economy, the global economy, and international business.

Chapter 2: The Opening of China and the Strategic Expansion of Multinationals: An Analysis of Subsidiary Motivation and Roles

Si Zhang and Robert Pearce

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, strategic management, economics and finance, asian economics


Si Zhang and Robert Pearce INTRODUCTION The twin trends of the high growth of the Chinese economy and its pronounced ability to attract foreign direct investment (FDI) remains strong. Central to both of these phenomena is the opening of the Chinese economy and its emerging positioning within the processes of globalization. The most visible (and, indeed, to some countries and industries, stressful) current manifestation of China’s economic opening is its export performance. Somewhat less obvious (certainly less present in current polemics and debates) is the immense importance of the growing Chinese market and, therefore, the concomitant trade role of imports. Understanding how the inward FDI, and its significance to multinational enterprises’ (MNEs) strategies, relates to both sides of the trade performance equation is thus a very important issue. With China’s increased participation in the global economy, eventually exemplified by its membership of the World Trade Organization (WTO), access to foreign markets became more and more influential in the development of Chinese industry. This then allowed the emergence of export-oriented sectors that could build on current sources of low-cost inputs (that is, static comparative advantage). Participation of MNEs in this derives a clear logic from two directions. Firstly, for many MNEs, the efficiency-oriented input potentials offered by China could represent precisely those that are continuously sought to underpin competitive production of their existing product range for the global marketplace. Secondly, the ability of MNEs to activate these resources for international competition may derive from their possession of abilities (for example, technology,...

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