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The Transformation of Hong Kong and Taiwanese Investment and Distinct Impacts on Local Industrial Upgrading in China: A Comparative Study of Dongguan

Over the past three decades of opening and reform, the Pearl River Delta in south China has benefited from massive inflows of foreign direct investment, particularly overseas/ethnic Chinese investment from Hong Kong and Taiwan. Hong Kong and Taiwanese investments have been generally treated without much differentiation, because both have involved the cross-border transplantation of labour-intensive, export-oriented manufacturing to the Pearl River Delta since the 1980s. Taking China’s Dongguan, the famous workshop of the world as a case, this paper attempts to examine and compare the transformation of investment from Hong Kong and Taiwan since the 1990s, especially after China’s accession to the World Trade Organization in 2001. Based on systematic field work and interviews with about 60 firms and relevant officials carried out from 2005 to 2007, the paper argues that industrialization in Dongguan has changed from being predominantly driven by Hong Kong investment in the 1980s to an increasing exposure to Taiwanese investment since the 1990s. The latter has contributed significantly to the sectoral upgrading of Dongguan’s local economy and to a gradual shift from an export orientation based on cheap labour to a domestic market orientation since the late 1990s. Investors from Hong Kong and Taiwan have followed different strategies of adaptation to host-region institutional changes, due to their distinct home advantages and to the nature of the interactions between the host and home regions.
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