The Impact of Clustering of DFI on Urban Economic Development in China: The Case of Qingdao Development Zones

With the dramatic increase in direct foreign investment (DFI) in China over the past two decades, understanding the role of DFT in her economic development has become essential. This thesis focuses on the impact of the clustering of DFI on urban economic development through a case study of the Economic and Technological Development Zone (ETDZ) and High-tech Industrial Park (HTIP) in Qingdao, Shandong Province. The concept of ‘cluster’ has become an object of desire for many cities and regions, resting on the widely accepted assumption that increased specialisation and external economies in clusters may contribute to urban and regional economic development. Little research has been conducted, however, as to the underlying role of DFI in fostering industrial clusters. This thesis attempts to fill this gap by examining the supplier-buyer linkages between foreign invested firms and local firms within the electrical and electronic sectors in development zones built by the Chinese government, hence investigating the mechanisms of how such a linkage may increase productivity and promote local economic development. The present research utilises 21 detailed firm case studies and describes the process and mechanisms of urban economic development through the interaction between foreign invested firms and local firms in development zones. In addition, with the help of quantitative methods, including regression, shift-share and location quotient (LQ) analyses, the thesis quantifies the macroeconomic impact of the clustering of DFI on local economic development. This thesis concludes that large domestic firms have played a pivotal role in forming the local industrial cluster, whereas foreign invested firms have played a supporting role. However, the foreign invested firms act as a bridge between large Chinese firms and their local suppliers by being both a main supplier (first-tier supplier) for large Chinese firms and a main buyer of raw materials and components for local suppliers (second-tier and third-tier suppliers). Through such a relationship, foreign invested firms, as innovators, enhance quality control management in local industries and facilitate the technology transfer for local suppliers. Thus, local suppliers and foreign invested firms provide the stable quality parts and components for the main domestic firms who play the leading role in forming clusters.