Joint Ventures in the People's Republic of China: The Control of Foreign Direct Investment under Socialism

Joint Ventures in the People's Republic of China: The Control of Foreign Direct Investment under Socialism

Joint Ventures in the People's Republic of China: The Control of Foreign Direct Investment under Socialism

Joint Ventures in the People's Republic of China: The Control of Foreign Direct Investment under Socialism

Synopsis

When Chinese leaders announced in late 1978 that China would "open to the outside world," they embarked on a strategy for attracting private foreign capital to spur economic development. At the same time, they were concerned about possible negative repercussions of this policy. Margaret Pearson examines government efforts to control the terms of foreign investment between 1979 and 1988 and, more broadly, the abilities of socialist states in general to establish the terms of their own participation in the world economy. Drawing on interviews with Chinese and foreigners involved in joint ventures, Pearson focuses on the years from 1979 through 1988, but she also comments on the fate of the "open" policy following the economic retrenchment and political upheavals of the late 1980s. "Since the policy of 'opening' was launched in Beijing in 1979 some Chinese leaders have favoured foreign investment, while others have feared that it would carry ideas and institutions that would corrupt Chinese socialism. This study of Chinese policies toward foreign-invested enterprises (FIFs) during the 1980s broadly charts significant changes in the impact of these competing views on policy.... Pearson's overview and analysis provide thought-provoking perspectives.... Pearson furnishes excellent evidence that throughout the 1980s the pressure for reform was so great that the conservatives had to retreat repeatedly, despite their concerns about the decline of collectivist values and the Maoist dream."--Stanley Lubman, The China Quarterly

Excerpt

Developing countries such as China that incorporate foreign capital into their development plan frequently employ a dual-edged strategy: they try at once to absorb enough capital to provide the desired developmental benefits, but at the same time they try to maintain state control over the terms of investment. the strategy is an attempt to reap what these governments perceive to be benefits of investment and avoid what they view to be negative results. the success of such a strategy depends on the host state's capacity to control the terms of investment. That capacity is in turn influenced by the domestic political and economic systems, on the one hand, and the international economy, on the other. This chapter discusses the factors, both political and economic, internal and external, that can influence a host state's capacity with respect to this strategy, and develops a framework to understand and evaluate China's attempt to control foreign investment over the course of the 1980s.

One major factor that influences the capacity of a host state is its bargaining strength vis-[.angleright]-vis foreign investors. the Chinese government's need to enter into a bargaining relationship with foreign investors—a relationship that is governed by international norms—creates a crucial exogenous source of pressure on China; the international environment establishes the “rules of the game” to which China must adhere if it is to attract foreign investment. Yet within the context of these externally generated norms, the host state and the foreign investors each possess considerable potential bargaining strengths and weaknesses that they can bring to bear in the negotiation process. the first part of this chapter details the strengths of the Chinese state and foreign investors in China. in particular, it outlines the argument suggested by some scholars and host governments that socialism such as was found in China in the 1980s can significantly enhance a country's bargaining power.

Bargaining theories emphasize the importance of understanding thoroughly each actor in the bargaining relationship in order to discern its interests and behavior. the remainder of this chapter addresses that need by examining the actors and the environment in which they operate. the second and third parts examine China's domestic political and economic . . .

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