Competitive Strategy Of The Local Government To Attract Foreign Investment

Under the background of the market economy, in the aim of improving the total welfare and local competitive advantage, local governments take advantage of non-current elements such as land resources, public infrastructure and preferential political measures to attract mobile elements as capital, technology, management and human resource. Against such backdrop, the fierce competition around external investment attracting between local governments started off. The external investment attracting activities of local government experiences several different stages, from the extensive mode low-level competition with single means of tax relieving to diversified mode high-level competition with composite means such as tax relief, financial subsidies, hardware environment construction and public services. The change reflects the ability of local governments to guide local economic development through administrative method is constantly improving.But the escalating competition around external investment attracting derivatives many serious problems: Excessive taxation relief, financial subsidies and preferential policies reduce the local financial revenue and increase financial risk, problem of trigger redundant construction and the enormous waste of social resources are also produced. On the other hand, the high cost did not gain the results, reduction and withdrawal of external investment after credit period cannot provide continued and adequate driving force for local economy. This undoubtedly has sounded the alarm for local governments; also lead us to trace the root of the problem.In aim of making full use of external investment and accessing lasting impetus to the local economy, locking external investment is more important than attracting it, because temporary external investment is unable to provide sustained local economic development momentum. The core of external investment attracting should be as follows: Local governments maximally attract external investment and lock it, format the sustainability of foreign capital and provide impetus to local economic development. The key of external investment lock-in is external public services and industrial clustering effect aroused from them. Local governments should make improving public services as the primary objective, gradually enrich the content and form of public services and maintain a long-term win-win relationship with investors in order to get the most amount of external capital and be the winner of the competition around external investment attracting.Tiebout Model provides reasonable explanation to the cause of competition around external investment attracting, and also provide useful strategic preferences to local governments. It is necessary for central government to fulfill the premise assumptions of Tiebout Model by constructing corresponding policy system and establish proper policies, in order to regulate the behavior of local governments and restrict the activities around external investment attracting to develop the competition mode in a benign direction of "Tiebout Competition". On the anther hand, local governments should take hold of the key ideas of Tiebout Model, clearly aware of their positioning functions, make raising quality of public products and services as starting point, increase in the construction of infrastructure investment, establish and improve the local administrative system and the public service system, focus the central content of competition on supplying of soft public goods such as government services, investment environment improvement and credit system construction to obtain favorable position in regional competition. Through this process, local governments could successfully lock-in external investment and access strong impetus for the development of local economy. Local governments should also aware of their advantage and demand, reasonable grasp the principles and methods of external investment attracting, find the best way to improving the competitiveness of the region and assure the efficiency and effect of external investment attracting.