Agglomeration and Competition among Chinese Cities: An Investigation of Taiwanese High‐Tech Foreign Direct Investment

The purpose of this study was to investigate how Taiwanese high‐tech firms' foreign direct investment (FDI) leads to agglomeration and competition among cities in China. By using social network analysis to analyze 1,111 subsidiaries affiliated with 270 multinational corporations (MNCs) during the years between 1988 and 2006 in 30 major Chinese cities, this study finds that: 1) agglomeration in Chinese cities falls into three primary categories: the hub cluster, the communication‐extended cluster, and the computer‐extended cluster. Among the aforementioned clusters, the hub cluster is the most critical in terms of firm location, and therefore is often a high‐priority investment site for Taiwanese high‐tech firms. 2) Chinese cities fall into four primary groups, or “blocks”: the core block, the coast block, the inland block, and the periphery block; these groups were determined by applying a structural equivalence analysis of which members of each type are in competition with one another. By linking the findings of the urban network characteristics to Chinese regional economic policies, this study provides guidance to aid executives in determining the optimal location for future FDI. Implications and suggestions for host country governments in terms of firms' investment strategies are also discussed.