State-free industries in China attract more foreign investment

Offer more human capital, skills

Cities in China not dominated by state-run industries are benefiting more from foreign investment than cities with a large number of state-controlled industries, find university researchers. “Cities that don’t have a large proportion of state-controlled industries appear to offer a better range of human capital and skills that would be attractive to foreign direct investment,” says University of Toronto economics professor Gordon Anderson, author of a study published in the October issue of the journal Urban Studies.

Anderson and co-author Professor Ying Ge of the University of International Business and Economics in Beijing examined the economic growth of 455 cities in China in five-year stages from 1985, when economic reforms started to take effect in the country from increasing foreign direct investment, to 1999. The researchers compared each city’s gross domestic product to factors such as the education level of its workforce and the diversity of businesses in each city. They found that cities with businesses that were not state run and where the labour force was highly educated attracted more foreign investors, especially in the period from 1990 to 1999 where economic growth was the most rapid. Cities on the eastern seaboard that were not hamstrung by a large presence of state enterprises also flourished from having access to trade routes, unlike cities in central and west China.

“If you have cities that have a flexible labour force, they can adapt and grow much more quickly to technological innovations,” says Anderson. “If a city is focused on one industry, it’s really dependant on the well-being of that industry and would find it more difficult to respond to the demands of the world economy.”