In this paper, we estimate the benefits to countries that purchase goods from China of having access to intermediary services provided by Hong Kong. Traders in Hong Kong supply information on markets and producers in China, which provides welfare gains to foreign firms using these services....

We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically...