Competition in the Chinese Market and Duration of Trade: Firm-Transaction Level Evidence(1/2)

China is the largest destination country of foreign direct investment (FDI), as well as the largest export country. Foreign-invested enterprises (FIEs) account for a large share of output and export in the manufacturing sector, contributing to sustaining China’s economic growth. Issues regarding FIEs’ export behaviors have received emerging concerns recently, while some crucial issues lacks in-depth investigations. This two-year project aims to analyze two research questions. First, although many FIEs undertake exports, the huge domestic market also attracts many FIEs to focus on serving the local market. Competition in the Chinese market, the competition pressure of FIEs might lower the markup of local firms, whereas the positive spillover effect brought about by FIEs and the distinct ‘Guanxi’ networks could help have a higher markup. Correspondingly, FIEs generally have superior technology and management knowledge, while they suffer disadvantages of cultural difference and other non-legal obstacles, resulting in a mixed influence on markups. This first issue we examine is “Competition in the Chinese Market: Do FIEs Have Higher Markups and Why (Not)?”。 Second, FIEs' exports, particularly process exports, are relate to intermediate goods imports from parent or other countries, suggesting that the durations of exports and imports are correlated. This issue is particularly relevant to Taiwanese electronics industries: if the duration of imports is much shorter than that of exports, it implies a substitution effect of intermediate goods by local firms. The second issue is “Vertical FDI and Durations of Exports and Imports: Evidence from Taiwan-owned Electronics Enterprises in China.” A correlated or simultaneous hazard model will be adopted in this study.