“Like Fish in Water”: Taiwanese Investors in a Rent-Seeking Society

Abstract

This paper examines Taiwanese investment in Jiangsu province where the largest Taiwanese investment in mainland China is concentrated. It is designed to help us better understand the dynamics of the political economy in China transformation, especially how state policies work at the local level. It also provides an opportunity to observe how local agents of the state interact with small investors from Taiwan. The main argument is that the surge of Taiwanese investment into mainland China has been facilitated by the flexibility of Taiwan’s unique industrial organization as well as shared cultural understanding and language affinity with local agents on the mainland. While not guaranteeing the success of investment projects, these factors do help lubricate the establishment of interpersonal networks and lower transaction costs. These are especially important given the institutional environment of a rent-seeking society in mainland China in which exchanges depend largely on the cooperativeness of local officials. Being familiar with similar experiences back in Taiwan, Taiwanese small investors have a clear advantage in cutting deals with local officials, often through various informal ways.