Changing Lanes in China: Foreign Direct Investment, Local Governments, and Auto Sector Developments

By Zhang, Le-Yin | The China Journal, July 2008 | Go to article overview

Changing Lanes in China: Foreign Direct Investment, Local Governments, and Auto Sector Developments


Zhang, Le-Yin, The China Journal


Changing Lanes in China: Foreign Direct Investment, Local Governments, and Auto Sector Developments, by Eric Thun. Cambridge: Cambridge University Press, 2006. xviii + 326 pp. £43.00/US$75.00 (hardcover), £16.99/US$29.99 (paperback).

This book is a valuable addition to a growing literature on the roles of foreign direct investment (FDI) and local governments (LGs) in China's industrial development. It examines how the LGs in five leading Chinese cities (Shanghai, Beijing, Guangzhou, Wuhan and Changchun) strove to utilize FDI to develop their auto industry. In so doing, the book attempts to understand China's rise as an industrial power and its integration with the global economy, and to illustrate how two decades of reform, development and foreign investment have prepared stateowned Chinese auto firms for the challenge of global integration. In addition to an extensive bibliography, the book draws upon a total of 187 interviews conducted between 1996 and 2004.

A major strength of the book lies in the successful integration of its analytical framework and its case material. Drawing upon Douglas North's work, the analytical framework emphasizes the role of institutional and organizational structures in affecting development outcomes. Localities are categorized in terms of two primary dimensions: the structure of their bureaucratic organization (unified vs. fragmented); and the form of their inter-firm relations (hierarchical coordination vs. market coordination). The former is measured by the LG's ability to accumulate and invest in the industry, the latter by ownership pattern. This gives the author four possible combinations, namely 1) unified bureaucracy and hierarchical relations between firms; 2) fragmented bureaucracy and market relations between firms; 3) fragmented bureaucracy and hierarchical relations between firms; 4) unified bureaucracy and market relations between firms. The author describes the first as "the local developmental state", befitting Shanghai, the second as "the laissez-faire local state", applicable to Beijing and Guangzhou, and the third as a "firm-dominated locality", characteristic of Changchun and Wuhan. The fourth type is considered as non-existent in the Chinese auto industry during the first 15 years of development, but is now nascent.

A key conclusion of the book is that the so-called "local developmental state" in Shanghai was most successful, evidenced by large market shares in both vehicles and components; Shanghai was most effective in meeting the sector's needs. Shanghai became less successful when the changing structure of the market led to increased competition.

By looking at five cities under three different models, the book demonstrates the diversity of LGs in China. …

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