The Impact of Clustering of DFI on Urban Economic Development in China: The Case of Qingdao Development Zones Thesis Submitted for the Degree of Doctor of Philosophy Jun Yeup Kim Development Planning Unit The Bartlett: Faculty of the Built Environment University College London 2005 UMI Number: U592140 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U592140 Published by ProQuest LLC 2013. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Acknowledgement The process of doctoral research is a tremendous challenge, effort and achievement. It would be very difficult to mention every single person who helped me along this thesis. I appreciate all of them. First of all, I am indebted to my Ph.D. supervisor, Dr. Le-Yin Zhang and back-up supervisor Dr. Julio Davila, for their trust, encouragement and guidance since I started my Ph.D. studies. I would like to thank Dr. John Thobum, in role of external examiner and Professor Christopher Howe, in role of internal examiner, for their challenging and precious comments. While conduct field work in Qingdao, China, I also benefited enormously from the assistance of the following: Dr. Lingsong (Director of Policy Research Centre, Qingdao Economic and Technological Development Zone); Dr. Ren Yinmu (Deputy President of Qingdao Social Science of Academy); Ms. Wang Rongmei (Purchase Manager in Qingdao Haier International Trading Company); Mr. Chen Yue (Purchase Manager in Strategic Purchase Dept, in Haier International Trading Company); Mr. Chen Wentao (Sales Deputy Manager in Invensys Appliance Control); Mr. Mickey Loo (Field Sales Engineer in Arrow Electronic China); Mr. Barry Ling (Sales Engineer in Emerson Appliance Solution); Mr. Cao Richard (Project Manager in Ericsson Langchao Wireless Technology). In Korea, some scholars also give me constructive comments especially, Professor Icksoo Kim (Business School in Korea University); Associate Professor Seung-Woo Yang (Dept, of Urban Engineering, University of Seoul); Professor Sang-Chuel Choe (Graduate School of Environment Studies, Seoul National University). I would like to express my profound appreciation to my parents, Han Koo Kim and Chun Hee Kim, for their full financial support and patient. I also wish to express my sincere gratitude to my wife Hye Yoen, my children Aerin and Doyon for their encouragement, tolerance and endless help, for being there in good and difficult times. Abstract With the dramatic increase in direct foreign investment (DFI) in China over the past two decades, understanding the role of DFT in her economic development has become essential. This thesis focuses on the impact of the clustering of DFI on urban economic development through a case study of the Economic and Technological Development Zone (ETDZ) and High-tech Industrial Park (HTIP) in Qingdao, Shandong Province. The concept of ‘cluster’ has become an object of desire for many cities and regions, resting on the widely accepted assumption that increased specialisation and external economies in clusters may contribute to urban and regional economic development. Little research has been conducted, however, as to the underlying role of DFI in fostering industrial clusters. This thesis attempts to fill this gap by examining the supplier-buyer linkages between foreign invested firms and local firms within the electrical and electronic sectors in development zones built by the Chinese government, hence investigating the mechanisms of how such a linkage may increase productivity and promote local economic development. The present research utilises 21 detailed firm case studies and describes the process and mechanisms of urban economic development through the interaction between foreign invested firms and local firms in development zones. In addition, with the help of quantitative methods, including regression, shift-share and location quotient (LQ) analyses, the thesis quantifies the macroeconomic impact of the clustering of DFI on local economic development. This thesis concludes that large domestic firms have played a pivotal role in forming the local industrial cluster, whereas foreign invested firms have played a supporting role. However, the foreign invested firms act as a bridge between large Chinese firms and their local suppliers by being both a main supplier (first-tier supplier) for large Chinese firms and a main buyer of raw materials and components for local suppliers (second-tier and third-tier suppliers). Through such a relationship, foreign invested firms, as innovators, enhance quality control management in local industries and facilitate the technology transfer for local suppliers. Thus, local suppliers and foreign invested firms provide the stable quality parts and components for the main domestic firms who play the leading role in forming clusters. 1 Contents List of Maps ------------------------------------------------------------------------------------------------------- 5 List of Figure ------------------------------------------------------------------------------------------------------5 List of Tables ------------------------------------------------------------------------------------------------------ 6 List of Appendix --------------------------------------------------------------------------------------------------8 Acronyms ---------------------------------------------------------------------------------------------------------- 9 Chapter One: Introduction 1.1 Inflows of DFI and rapid economic growth in China--------------------------------------------- 11 1.2 The role of development zones ---------------------------------------------------------------------- 13 1.3 The purpose of research ----------------------------------------------------------------------------------14 1.4 Structure of thesis ----------------------------------------------------------------------------------------- 15 Chapter Two: DFI Inflows and Development Zones in China 2.1 Introduction ------------------------------------------------------------------------------------------------ 17 2.2 The Characteristics of DFI inflows in China ------------------------------------------------------ 17 2.3 China’s Development zones: rationales and policies---------------------------------------------- 19 2.3.1 Rationales of Development Zones in China ----------------------------------------------------20 2.3.2 Policies of Development Zones in China -------------------------------------------------------21 2.3.3 Types of Foreign Invested Firms -----------------------------------------------------------------22 2.3.4 Different Types of Development Zones in China --------------------------------------------- 23 2.4 An Initial Assessments: Development Zones’ Impact on Chinese Regional Economy — 26 2.5 Conclusions -------------------------------------------------------------------------------------------------32 Chapter Three: The Theoretical Framework 3.1 Introduction -------------------------------------------------------------------------------------------------41 3.2 DFI and Urban Economic Development ------------------------------------------------------------ 42 3.2.1 Impact of DFI on Urban Economic Development --------------------------------------------- 42 3.2.2 The Concept of Urban Economic Development --------------------------------------------- 43 3.3 Critical Review of Literatures -------------------------------------------------------------------------- 48 3.3.1 Spatial Organisation of Firms: Development Pole, Innovative Milieu and ID-------- 48 2 3.3.2 Inter-Firm Linkages and Urban Economic Development------------------------------------ 54 3.3.3 Global Value Chain and Clusters ----------------------------------------------------------------- 57 3.3.4 The Role of Foreign Invested Firms -------------------------------------------------------------- 58 3.4 Conclusions -------------------------------------------------------------------------------------------------65 Chapter Four: Research Methodology 4.1 Introduction ---------------------------------------------------------------------------------------------- 68 4.2 Analytical Framework ------------------------------------------------------------------------------------69 4.2.1 Shift-share Analysis --------------------------------------------------------------------------------- 69 4.2.2 Location quotient Analysis------------------------------------------------------------------------- 71 4.2.3 Data Collection -------------------------------------------------------------------------------------- 73 4.3 Research Design -------------------------------------------------------------------------------------------74 4.3.1 Questionnaire survey and interviews-------------------------------------------------------------- 74 4.3.2 Sampling Design---------------------------------------------------------------------------------------- 75 4.3.3 Preliminary field work ------------------------------------------------------------------------------ 83 4.3.4 Final field work---- -----------------------------------------------------------------------------------