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Following economic reforms, China has become one of the premiere destinations for foreign capital; however, the benefits of this spectacular growth are not evenly distributed. Since the beginning of the 2000s, the Chinese government has designed and implemented policies to encourage foreign investment in central and western provinces to help decrease the significant distributional differences in regional industrial value-added, with limited success. In contrast to previous literature, this paper uses Panel Least Squares method to analyze empirically the impact of industrial sector FDI on Chinese regional inequality in industrial value-added 2003–2013, using three Chinese regions. The lack of prerequisite institutional structure to aid in FDI absorption affects location choices. Despite government policies to support inland regional economic development, foreign firms still prefer to invest in coastal provinces, further illustrating the effects of regional clusters.

Foreign direct investment effects on the distribution of regional industrial value-added in China