17、their crucial role in the economy and the states finances.Insert Table 1 about hereMoreover, foreign firms contribution to the national economy is not limited to the inflow of capital or the generation of tax revenue. They are also the driving force behind Chinas integration into the international m 。

18、arket as can be seen in the foreign trade statistics (see Figure 2). Since the reforms, China imports and exports have rapidly increased, well above the increase in world ex- and import. By the end of 2004, the imports and exports of China reached 561.38 billion US dollar and 593.36 billion US dolla 。

19、r respectively, with an average annual growth rate of 17.5 percent and 17.7 percent respectively since the beginning of the reforms. As a consequence, Chinas contribution to world exports increased from 1 percent (in 1980) to more than 6 percent (in 2004). The export success of Chinas economy is to。

20、a great part the export success of foreign firms in China (Figure 2). While in 1986, the share of foreign firms export in total export was only 1.9 percent, this share has increased to 57.1 percent in 2004. Insert Figure 2 about hereEven more striking is the extent by which the composition in export 。

21、 changed. Chinas exports have shifted from natural resource-based products (e.g. grain and oil) to labour-intensive products (e.g. garment and textile products), and lately increasingly more to technology-incentive products (e.g. machinery and computer products) (see Table 2). In 2004 machinery and。

22、electronic products added up to 54.5 percent of the total export values, of which more than 70 per cent were contributed by foreign firms (China NSB, 2005). Another example is emergence of a Chinese IT-sector in the 1990s, which proved to be internationally competitive to the effect that today China 。

23、 belongs to the top three world exporters (Amighini, 2005). In this case too, foreign firms dominate Chinas exports. 87.3 per cent of exports of high-tech and new technological products had been produced by foreign firms in 2004 (China MOC, 2005).Insert Table 2 about hereAll in all, the picture summ 。

24、arised above demonstrates the remarkable performance of FDI and foreign firms in China at the macro level, and invites a more detailed analysis of the underlying processes. The first question is why foreign firms would go to China? 2. Why investing in China? Economic analysis of foreign trade and fo 。

25、reign direct investment in China often cites determinants such as market size, economic development, labour market condition and infrastructure (e.g. Cheng and Kwan, 2000;
Wei and Liu, 2001). Market size (measured by GDP or GDP per capita) in combination with economic growth translates into business 。

26、 opportunities for foreign investors. Likewise a huge labour force in combination with low (labour) costs plus a small but remarkably well trained technical personnel add to the attractiveness of China as a factor market (e.g. Lu and Liu, 2004;
Martin and Manole, 2003). Chinas infrastructure especia 。

27、lly transportation and communications is also no longer a bottleneck but contribute to the attractiveness as a location for FDI (China NBS 2005). Another group of studies stress institutional factors, i.e. institutional incentives for FDI. The reforms were accompanied by liberalization in the foreig 。

28、n trade sectors such as the establishment of Special Economic Zones, special tariffs and tax rates all attempting to attract FDI (e.g. Fu 2000;
Ng and Tuan 2002) and keeping the operating costs within China at a low level (e.g. Krug 2004;
Krugman 1994). Corruption and regulatory burden though ubiqui 。

29、tous have so far only started to deter investors from North America and Europe (e.g. Khan, 2001) while investors closer to China or her culture do not seem to be worried. It explains that Asian investors from Hong Kong, Taiwan, Macao, Singapore, South Korea and Japan, still dominate FDI inflow in Ch 。

30、ina (e.g. Li, et al. 2001;
Lu and Zhu, 1995;
Yang, 1997;
Zhang, 2005). All in all, these studies confirm that both economic advantages and institutional incentives attract FDI to China. However, the studies focusing at the macro level dismiss two crucial aspects. First, China cannot be modelled as o 。

31、ne, let alone one integrated market. Thus foreign firms need to respond to local rather than national boundaries of markets and institutions (e.g. Dollar et al. 2003). Second, the success of FDI in China depends crucially on the activities of foreign firms in particular their decision what to produc 。

32、e and where in China, how to organise business relations and how to deal with local jurisdictions.Thus it is assumed in what follows that a firm-level analysis is needed to identify (systematic) factors by which the specificity of FDI in China and the performance of the FDI sector can be explained.。

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标题：Foreign|Foreign firms in China Successstrategic choices( 二 )