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Where a foreign company makes its corporate home in China may depend on the company's size and sector. Business leaders interviewed by the author judged Hong Kong to be the place for smaller firms to manufacture for export and Shanghai the place for giant companies to tap the domestic market. Hong Kong has clear advantages in many service industries. It also has rule of law, minimal bureaucracy, and no corruption. Compared with Hong Kong, Shanghai's legal system is far less developed. Big, foreign companies can often assert their rights in Shanghai, but most small and medium-sized companies need Hong Kong's stronger legal foundation. Shanghai has clear advantages in engineering, R&D, and design. Heavy industries like petrochemical, steel, and machine tools have a critical mass there and domestic-oriented marketers flourish. Shanghai also seems to have a more national perspective whereas Hong Kong has a vastly superior overseas trade network. Meanwhile, other commercial centers are emerging in China and are revamping their approaches to foreign business. Complementarity and competition, not dominance and defeat, define China's urban relationships.

Originally published in: The China Business Review, v. 31, no. 3 May-June 2004, pp. 44-47.

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