Geographic distribution and location choice of foreign direct investment in China

  • Qinchen Zhang

Student thesis: Doctoral ThesisDoctor of Philosophy


Foreign companies have been investing and capital has been pouring into China for decades. Foreign direct investment (FDI) is an important driving force for national development, while China is an investment destination that multinationals cannot ignore in the global market. The rapid economic growth and market prospects of the country attract an increasing number of multinationals and entrepreneurs to invest in China. Unbalanced regional development and specific policies or institutional practice affect the geographic distribution of FDI in China. Socio-economic transformation influences the industrial choice and preference of foreign capital in China, while international relations have impacts on the origin dynamics. This study includes a comprehensive investigation of the three dimensions of spatial distribution, industrial sector and country of origin. The thesis explores the effects of production costs, consumer markets, industrial advantages, and institutional progress on FDI promotion in China. The spatial distribution and mechanism of FDI inflows to Chinese city-regions are analysed, and location theories are combined with the Chinese context to understand the patterns observed. The spatial pattern of FDI inflows demonstrates significant clustering features, but there has been a weakening trend over the past two decades. The Yangtze River Delta has become the largest agglomeration region for FDI in China. Regional development in Midwest China has brought a large amount of FDI to inland cities as well. Spatial dependence of FDI inflows based on geographic proximity is found in some regions, but it is insignificant on a national scale. Local economic factors including energy supply, market consumption and labour wage play key roles in the spatial FDI inflows. In addition to the regional distribution in the national scope, we pay special attention to the spatiotemporal characteristics of FDI in the Yangtze River Delta region and its links with urban industrial and development policies.

FDI in China has undergone a dynamic evolution, reflected in a series of changes in total volume, structure and sources. FDI flows in China have increased systematically for decades, but the sectoral and country-origin distributions have changed over time. We find Chinese FDI inflows have experienced a shift from manufacturing to real estate and service sectors. Although lots of negative factors like price rising, currency appreciation, overcapacity and ongoing US trade war, Chinese great market consumption continue to create new opportunities for foreign business in China. Chinese government also attempts to nurture service trade as an engine of economic growth alongside trade in goods, and ease market access for numerous service industrial segmentations which is a policy driver behind the rapid rise in service FDI. FDI has a preference for local advantageous industries, which affects the location choice of multinational companies with specific field backgrounds in China. Meanwhile, targeted industrial policies by local Chinese authorities are often seen as positives for investment. China's ambitious technological innovation program has benefited greatly from foreign investment and technology transfer. More and more R&D institutions invested by multinational companies have become an important part of China's innovation system. Based on analysis of FDI's origin distribution, we find neighbouring countries or regions in Asia and free trade ports like Hongkong and Singapore with taxation advantages contribute the vast majority of the FDI in China. Hong Kong's status as the largest supplier of FDI to the mainland has become increasingly prominent over the past 20 years. Chinese economic diplomacy, with an ambition of regional integration in East and Southeast Asia, makes efforts to the liberalization of intra-regional investment. Relevant trade agreements not only facilitate overseas investment by Chinese capital, but also opens the door of Chinese market to companies from more countries. Under the unfavourable situation of Sino-US relations, China has turned to seek a closer economic and trade relationship with the EU. This is the incentive for the EU, especially Germany, to increase investment in China in the past decade. The thesis takes a wide-ranging perspective for understanding FDI attraction, dynamic changes and influencing factors in China. The study deepens our knowledge of spatial inequalities in FDI in the Chinese context. Also, the study of structural changes in FDI can have wide policy implications for Chinese states, foreign companies and investors, as well as developing countries committed to attracting FDI.
Date of AwardJul 2023
Original languageEnglish
Awarding Institution
  • Queen's University Belfast
SupervisorChristopher Lloyd (Supervisor) & Gemma Catney (Supervisor)


  • FDI
  • China
  • geographic distribution
  • location choice
  • sectoral dynamics
  • investment origins

Cite this