The spatial dynamics of foreign investment in the Pearl River Delta, south China

The Pearl River Delta region in south China has experienced dramatic economic development, industrialization and urbanization since the late 1970s. Foreign investment, especially the capital from Hong Kong, has been one of the major driving forces underlying the process. The spatial concentration/diffusion of foreign investment in a region also has important bearing on the balanced/unbalanced urban and regional development. This issue remains unexamined and critical analysis is needed to unveil the spatial impacts of foreign direct investment (FDI) activities in China. This paper will focus on the Pearl River Delta region to examine the spatial diffusion and the determinants of foreign investment. The diffusion of foreign investment from the provincial capital, Guangzhou and two special economic zones near Hong Kong to surrounding areas is clearly identified. The diffusion is the result of the widespread implementation of open-door policy in the region and significant improvement in infrastructure. Four models of foreign investment are developed to explain the spatial incidence of foreign investment in the region. The findings of this paper can shed light on the regional development process in China and other developing countries under the influence of foreign capital.