Urban competitiveness of Chinese cities in FDI and domestic investment networks

Over the last decade, Chinese urbanization rate is booming from 17.92% in 1978 to 52.57% in 2012. It is no doubt that city is the engine driving economic development. During urban development, Investment has huge impact on economy and contributes a lot to city’s prosperity and dynamics. Among investment types, Foreign Direct Investment (FDI) and Domestic Investment (DI) are two key players that stimulate the economy on a large scale. Consequently, cities compete with each other to strive for FDI and DI. Therefore, how to build cities’ competitive advantages is a significant subject research. The research is aimed at city competitiveness to attract FDI and DI. Although it is still argument that which factor dominates capital allocation: relationship or attribute. Regardless of their priority, the research combines the two dimensions together that are network analysis and location factor analysis in the research. Therefore, FDI and DI, related with firms, governments and factor conditions, are analyzed in dimensions of relationship and attribute respectively in the research. Firstly, on the basis of network analysis, the research defines the positions of every city in the network. The network analysis includes general analysis, sector analysis, centrality analysis and core-periphery analysis in FDI network and DI network respectively. Secondly, the research focuses on finding main competitors for major cities. In the next part, the research concentrates on the location factors analysis by means of linear regression model. The location factor analysis comprises of general analysis, category analysis, coastal cities analysis and inland cities analysis for FDI and DI respectively. In the last part, the research explores the relationship between FDI and DI. In terms of findings, the research identifies 7 clear results. Primarily, international investors are retreating, to some extent, from Chinese market. DI is upgrading from heavy industry and manufacturing to technology and service sectors. In addition, the research finds that Number of Employed Persons in Urban Private Enterprises and Self-employed Individuals and Average Wage of Staff and Workers are the most important indicators to attract FDI and DI respectively. Then the location factor analysis is operated by categories. As results, Expenditure for Science Administration is most important to attract both FDI and DI in Humanities Factors. Park, Garden and Green Area and Number of Public Transportation Vehicles contribute most to attract FDI and DI respectively in Environment Factors. Number of Employed Persons in Urban Private Enterprises and Self-Employed Individuals and Average Wage of Staff and Workers contribute most to attract FDI and DI respectively in Economy Factors. In the last part, the research confirms that FDI and DI influence each other positively. In terms of recommendations, the research proposes that if China intends to keep competitive in attracting FDI, it has to expand its value chain. For cities in periphery block, they should consolidate their linkages with core cities; on the other side, they should cooperate with each other so as to become more independent. In addition, cities should make policies to encourage entrepreneurship and open some economic sectors for private capital so as to improve market openness, such as liberalizing interest rates and taking steps to reduce its dependency on exports. In order to attract talents, local governments should reform Household Registration System (HRS) and offer social services to outsiders equally. At the same time, it is a better way to develop local education which offers steady and qualified human resources. Regarding education, academic liberty is essential so there is a need to decentralize more authority to academic institutions rather than central administration. Based on their contexts, local governments should increase financial support to scientific institutions and offer preferential policies to attract high-tech industries. Green area and underground system in urban planning should be paid more attention. Furthermore, market openness and employee welfare are the most important factors to attract FDI and DI respectively. Lastly, since DI has more power to attract FDI, cities can lay particular emphasis on DI so that cities would be more efficient to attract both FDI and DI. Aforementioned results are derived from general database analysis while some specific cities maybe deviate to some degree because of heterogeneity.