Institutions, location, and network of multinational enterprises in China: a case study of Hangzhou

Based on extensive interviews with local government officials and a survey of forty-four foreign-invested enterprises, this paper examines the role of local formal institutions and their constituent components in intra-urban location decisions of multinational enterprises (MNEs) and in network properties of their investments in Hangzhou municipality, Zhejiang province, China. This paper finds that, unlike previous studies based on developed economies, local formal institutions in terms of sub-municipal governments are an important factor influencing the intra-urban distribution of MNE investments in Hangzhou. The local formal institutional components that are of primary importance include financial incentives, industrial infrastructures, and government attitudes toward foreign investments. They are of greater significance than their municipal-level counterparts given the immediate administrative relationships between the sub-municipal authorities and the foreign investors. The start-up fiscal capability of sub-municipal governments can therefore partly determine the intra-urban pattern of foreign supplier investments.