Sectoral location of FDI in China

This study investigates the determinants of foreign direct investment (FDI) sectoral allocation in 29 manufacturing sectors in China from 2000 to 2007. We find that FDI sectoral allocation has a strong self-reinforcing effect. Multinational corporations with ownership advantages tend to invest more in local high-productivity sectors. The FDI presence, however, is discouraged in China’s high-productivity sectors in which the major market share is dominated by state-owned enterprises. We also find that the degree of FDI penetration is higher in sectors that are producing labour-intensive goods and also export oriented.