Understanding foreign direct investment in the context of entrepreneurial urban China

China has been the largest recipient country of foreign direct investment (FDI) in the developing world for many years during the past three decades. Despite voluminous literature on the locational choice of FDI or its impact on the host economy, little attention has been paid to the causes that give rise to its distinctive pattern of dynamics in China. By reviewing the historical path of FDI, its weight in Chinese economy as well as the quality of FDI inflows, this study finds the mid-1990s and the years since the start of this century are the two periods during which FDI are most significant and vibrant in this country. Both are characterized by surging FDI inflows, high ratios of greenfield manufacturing FDI to nationwide total fixed asset investment that can hardly paralleled by most other major countries and increasing average size of projects capitalized by FDI.;This study argues the entrepreneurial orientation of local states to maximize short-term economic and revenue growth is the cause that leads to the pattern of FDI as identified. Under the centralized political system, both the fiscal decentralization before and the re-centralization after 1994 motivate local states to expedite economic growth and mobilize revenue collection on a short-term basis. Although state-owned enterprises had been the ideal partner of local governments before the mid-1990s to generate economic growth without demonstrating a corresponding increase of budgetary revenues, the fiscal system established in 1994 not only makes foreign invested enterprises the only candidate agent via which local economic and revenue growth could be achieved, it also institutionally reinforces the weights of real estate and manufacturing sectors in local revenue mobilization and pave the way for land-based urban growth strategies.;The intertwined urban housing and land use reforms initiated at the end of 1990s eventually lead to the preference of local states for manufacturing FDI. Specifically, municipal governments that are the de facto owner of urban land are able to drive up the price of land used for residential and commercial development by limiting its supply and allowing higher floor area ratios. On the other hand, the price of land for manufacturing production has been maintained by the municipalities at excessively low level to attract inward investments. The contrasting strategies of land pricing not only mean rising costs associated with the manufacturing land use, they also prompt relentless acquisition of arable land by municipalities and make land an increasingly tight constraint against rampant urban growth, which results in the municipal demand for manufacturing FDI that is generally more efficient in land use.;This study also presents the differing degree of local state entrepreneurialism across regions by comparing the land use dynamics between cities in the costal, middle and western China. It concludes with the impact of this land-based urban growth strategy on China's domestic economic and social sustainability and policy implications for sustainable urban development.