684 { China’s Quest
and the Four Tigers.^16 Chinese leaders may not have set out to replicate the
East Asian developmental state—as Japan, South Korea, and Taiwan came to
be called. But that was the cumulative result of the PRC’s policies and of the
East Asian neighborhood in which east coast China was situated.
China’s opening accelerated the process of East Asian economic inte-
gration. Huge amounts of capital from Hong Kong, Southeast Asia, Japan,
Taiwan, and South Korea flowed into the PRC to produce goods for export
to global markets. Circa 1978, China had abundant labor from its large and
underemployed agricultural workforce. These workers were quite willing to
work for wages far below those paid in Hong Kong, Taiwan, Japan, or South
Korea—let alone the levels paid in North America or Europe. The PRC also
had abundant land, mostly in still agricultural areas near cities and trans-
portation links. This land could be taken by the PRC’s authoritarian state
for nominal compensation and made available to entrepreneurs willing to set
up factories producing goods for export. Demands for costly environmental
protection measures, which people and governments in Japan, South Korea,
Taiwan, and Hong Kong were increasingly demanding, could also be waived
by PRC governments. By thus shifting labor- and land-intensive production
operations from high-cost countries to China, manufacturers could cut costs
significantly. Containerized movement of freight and the electronic trans-
mission of information also made transnational production of a single good
increasingly feasible. The development of East Asian trans-national produc-
tion networks, combining the specialized comparative advantage of several
countries in the production of a single product, cut costs significantly. When
global price competition was intense, this proved to be a very attractive option.
China was on its way to becoming the global low-cost manufacturing base.
The most common understanding of the strong flow of foreign investment
into China in the decades after 1978 is in terms of the competitive advan-
tages offered to foreign firms by low land and labor costs in China. Non-PRC
firms seeking profits on intensely competitive global markets invested in
China as a way to cut costs. Huang Yasheng has supplemented this foreign
firm “supply-driven” explanation with a Chinese firm “demand-driven”
one.^17 According to Huang, because privately owned enterprises had diffi-
culty obtaining capital from China’s banks, which lent overwhelmingly to
state-owned firms, private entrepreneurs turned for capital to other sources,
including foreign ones. Linking up with foreign firms was a way for ambi-
tious private Chinese entrepreneurs to procure the capital they needed to
grow their enterprises.
Foreign investment into China was linked to China’s emergence as an
export power. Foreign direct investment (FDI) flowed into post-1978 China
in huge amounts, as illustrated by Figure 25-4. Only the United States
exceeded China as a destination for global FDI. If the Hong Kong Special
Administrative Region is combined for this purpose into the PRC, China’s