Institutions,Location, and Networks of Multinational Enterprises in China: A Case Study of Hangzhou

Based on interviews with local government officials and a survey of 44 foreigninvested enterprises (FIEs), this article examines the significance of local formal institutions for intramunicipal location decisions of multinational enterprises (MNEs) and for network properties of their investments in Hangzhou, China. This study finds that local formal institutions, in terms of municipal district governments and development zone authorities, are a significant force influencing the location decisions of MNEs within Hangzhou. These local entities shape the intramunicipal location decisions of MNEs through three primary vehicles including financial incentives, industrial infrastructures, and attitudes toward foreign investors. The start-up fiscal capability of local formal institutions is therefore central to the foreign investment development efforts. Local formal institutions, however, are a less significant force influencing the network properties of FIEs in Hangzhou. District governments and zone authorities are largely confined to measures for co-locating allied foreign supplier investments to promote FIE local linkages.