How FDIs Have Served as a Key Factor in Delaying Democracy in China

In "'Reform and Openness': Why China's Economic Reforms Have Delayed Democracy," Mary Gallagher ventures to explain how China has managed to balance rapid economic growth and great social change while continuing to maintain political authoritarianism. Whereas East Asia has shifted toward democratization as a result of the accelerated pace of economic growth it experienced during the 1970s and 1980s, China has been able to maintain a vigorous economy for over twenty years without falling to political liberalization and turning only slightly toward democratic government. China's ability to resist democratization stands in direct contrast to historical examples and literature connecting economic development to democracy. Explaining this exception, Gallagher attributes China's abnormality to "the timing and sequencing of its foreign direct investment (FDI) liberalization." 

In analyzing the effects of FDI liberalization in the political realm, Gallagher gives a three-part argument as to why political liberalization has not come about. Firstly, the success that China experienced with its FDI liberalization allowed to Chinese state to execute destabilizing reforms. This served to fragment the parts of society, particularly the urban class, that would be the ones to lose the most from economic reform. Secondly, there was increased competition between regions and firms and within firms to draw in the FDI. Lastly, this pouring in of capital into China's economy led to debates about national industry versus foreign competition and public versus private ownership. In each of these arguments, the fragmentation of society has led to a stronger Chinese state and a weakened civil society; therefore, reforms in the privatization of the state sector and the developing of an indigenous capitalist class followed the liberalization of FDI. China was successful, as opposed to Russia and Eastern Europe and Korea and Taiwan, in the maintenance of its political authority because of this sequencing. While China took the route of FDI liberalization Russia and Eastern Europe chose to privatize industry and quickly reform institution of socialism, resulting in its, and Taiwan and Korea chose to keep their domestic economies closed by limiting FDI resulting in a weaker business

class and a slower economy.