49、g the behaviour of foreign firms in China. 3.2. Choosing the right location in ChinaThat firms invest in China, and starting at the end of the 1990s increasingly more has already been shown earlier. Thus, the next question is to look for reasons behind locational choice within China. The statistics。

50、shows that foreign firms unevenly spread within the country. As can be seen from Figure 3, when listed according to province the ten most favoured locations are all to be found in the Eastern region Three regions are be separated in China. The eastern region includes: Beijing, Tianjin, Hebei, Liaoni 。

51、ng, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. The central region includes Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei and Hunan. The western region includes Guangxi, Neimenggu, Sichuan, Chongqing, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang a 。

52、nd Xizang. . The Eastern region hosted 82.43 percent of the total foreign firms that had been established by the end of 2004. This has to be seen in contrast to the twelve provinces called the Western region, seven of which are found at the end of the list. The Western region altogether hosted 6.53。

53、percent of the total foreign firms up to 2004. That leaves the eight provinces that are called the Central region hosting 11.04 percent of the total foreign firms up to 2004 (China MOC, 2005). This pattern does not change so much since 1980s (OECD, 2002). Insert Figure 3 about hereEmpirical studies。

54、analyzing the reasons for patterns of locational choice in China point to factors such as openness for trade, different economic growth rate, manpower, infrastructure, and preferential investment policies at the sub-national level (e.g. Broadman and Sun 1997;
Chadee, et al. 2003). However, the locat 。

55、ional advantage is also reflecting something that can be called investment climate which is generated by local jurisdictions (e.g. Dollar, et al. 2003). Thus, for example, many consulting reports and empirical studies attribute the high concentration of FDI in the Eastern region, i.e. the Pearl Delt 。

56、a and Yangtze areas, to the general investment climate, based on higher GDP per capita, high concentration of modern small and medium enterprises, higher education level, advanced transportation infrastructure, good shipping connection, and proximity to major international ports such as Shanghai and 。

57、 Hong Kong (e.g. KPMG, 2003, 2005;
PricewaterhouseCoopers, 2004). A closer look, however, point to another determinant, namely the institutional advantage offered by special economic zones (SEZs), “open” coastal cities, and development zones. Since the early eighties, China has opened certain jurisd 。

58、ictions to foreign investors (such as SEZs, open coastal cities, and open coastal regions), mostly found in the Eastern region. These jurisdictions are often endowed with better infrastructure, less state intervention and better developed legal systems. Empirical studies confirm that foreign firms p 。

59、ositively respond to these institutional advantages by deliberately locating their investment in these locations (e.g. Li and Park, 2006;
Ng and Tuan, 2002). In a second step sub-national administrative levels were allowed to establish their own development zones. This led however not to a wider geo 。

60、graphical spread, instead the new development zones closely followed the locational choice of FDI (see Table 3 and compare with figure 3) Insert Table 3 about hereWithin these jurisdictions, industrial sites are parcelled out, roads, and public utilities are provided. Most crucial however is the fac 。

61、t that foreign firms in the special zones enjoy tax privileges. Thus, for example, (manufacturing) firms pay only half of the usual rate of 30 per cent;
but only after the first two profit-making years, during which they are tax exempted and after another three years during which they pay only 50 pe 。

62、rcent of the preferential rate (15 instead of 30 per cent). Technologically advanced firms and export-oriented firms can expect even further tax reductions after these five years. Harder to assess is the effect of regulation and state intervention in these zones. As empirical studies have shown the。

63、zones have enough leeway to design their own “industrial policy”, often enough in consultation with the foreign companies already operating in the zone. As a consequence the special zones together offer a comparative advantage when compared with the “rest of the country”. As different special zones。

64、offer different sets of rules and regulations foreign firms will decide on location not only according to (short term) cost advantages, or infrastructure, but also according to the best “fitting” regulatory regime. To sum up, the investment patterns points to the influence institutional factors have 。

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标题：Foreign|Foreign firms in China Successstrategic choices( 四 )