This paper argues that Taiwanese investment in southern China has presented a different type of foreign direct investment. The investors are mostly small and medium‐sized, independent manufacturing firms, and they have been dealing with local governments instead of the central government. Based on the author's interviews with Taiwanese shoe manufacturers and Chinese workers in the Pearl River Delta in Guangdong province, it was found that such investment has resulted in highly decentralized yet poorly coordinated processes of industrialization and urbanization in southern Chin