“Putting people first”? FDI and employment adjustment of state-owned enterprises in Urban China

This paper assess the employment consequences of FDI on state-owned enterprises (SOEs) in Urban China, with the aid of instrumental variables quantile regression technique based on a rich panel data set from recent years. It documents evidence that foreign participation at the level of the firm enhances the growth prospects of the more dynamic SOEs only. Furthermore, sector level FDI and export-oriented FDI in downstream sectors exert deleterious impact on the employment growth of most SOEs, especially in labour-intensive industries. The paper thus highlights a policy dilemma facing Chinese policy makers: how to adjust to new post-WTO global realities without destroying the traditional role of SOEs as a source of livelihood for millions of urban workers? For a country at the forefront of the cutthroat competition for FDI, but also with a newfound official credo of “putting people first”, resolving this dilemma is not going to be easy.