Weak institutions ought to deter foreign direction investment (FDI), and mass media stories highlight China …'s institutional deficiencies, yet China is now one of the world's largest FDI destinations. This incongruity characterizes China …'s paradoxical growth. Cross-country regressions show that China's FDI inflow is not exceptionally large, given the quality of its …

, likely the engine for innovation in the coming years in China, are especially financially constrained, due perhaps to the …-the-big-and-letting-go-the-small' privatization program in China. Our empirical results suggest that government connections play an important role in explaining … Chinese firms' financing conditions, and provide further evidence on the nature of the misallocation of credit by China …