1. ¹Southwestern University of Finance and Economics, Chengdu, China
2. ²School of Management, Birkbeck College, University of London, London, UK
3. ³School of Management, University of Bradford, Bradford, UK
4. ⁴The York Management School, University of York, Heslington, York, UK

Correspondence: Y Wei, The York Management School, University of York, Heslington, York YO10 5DD, UK. Tel: +44 (0)1904 434892; Fax: +44 (0)1904 433431; E-mail: yw542@york.ac.uk

Received 19 August 2005; Revised 12 April 2008; Accepted 22 April 2008; Published online 7 May 2009.

Abstract

This paper examines the linkage effects of foreign direct investment (FDI) on firm-level productivity in Chinese manufacturing. It is found that FDI generates positive vertical linkage effects in Chinese manufacturing at both the national and regional levels, and limited positive horizontal spillovers at the regional level. While OECD firms gain from both vertical and (probably) horizontal linkages, Hong Kong, Macao and Taiwanese firms benefit only from backward linkage effects. In the domestic sector, in which we are most interested, both state-owned enterprises (SOEs) and non-SOEs are hurt by competition from foreign firms in the same industries. While SOEs gain from vertical linkages with foreign firms, non-SOEs are unable to do so. The patterns of productivity spillovers from FDI in Chinese manufacturing seem to be determined by one key factor – the technological capabilities of the firms involved. Important data limitations and policy implications of this research are discussed.