FDI in western China - A study of the factors behind location choices of Nordic companies

Abstract: Background and problems: The extraordinary growth in China the last four decades has created large inequality within the country. Perhaps the most obvious is that between the developed coastal regions and the inland. To boost the economic development in the hinterland the Western Development Strategy was initiated in year 2000. In recent years the affected area has had the highest growth levels in all of China. At the same time more and more international companies is looking to invest in the area. Aim and Purpose: The aim of the study is to examine what effects the Western Development Strategy has had on investments in western China and how Nordic companies are acting in this environment. Method and data collection: The information was gathered in several ways. A quantitative study was done using data from the National Bureau of Statistics of China. Further information on the situation and decisions of Nordic companies active in the Western regions was gathered through interviews. Thirdly interviews were also held with organisations that were working with companies that are planning, or have invested in Western China. Result and Conclusion: In the data analysis we find that the WDS has had an effect on the FDI inflow to western China. It is hard to draw any clear conclusions form the interviews on the effect of the WDS. The gross regional product is found has a positive effect on investments, suggesting that the local markets are important to investors and are becoming increasingly important to MNE’s. We find that wage has a negative effect on investments. Infrastructure and education level are not found to have any effect on the localization on FDI. We find that local markets are driving factor for the investments among Nordic companies. For the manufacturing companies also agglomeration was an important factor. Nordic companies are generally engaged in more advanced industries why wage is a less important factor. Most of the present companies are large which we suggest might be the result of corruption and the strong role played by government.