Abstract: Against the backdrop of profound global economic restructuring, sustained downward pressure on international direct investment, and the increasingly arduous task of stabilizing foreign capital in China, evaluating the efficacy and mechanisms of local industrial policies in attracting foreign investment has become critically important. However, existing research has paid insufficient attention to the unique role of industrial policies in attracting cross-border direct investment, and systematic empirical evidence on the micro-level mechanisms and boundary conditions through which local industrial policies influence foreign firm entry at the city-industry level remains limited. By identifying local industrial policies through text mining of government work reports, this paper systematically examines their impact on foreign firm entry at the city-industry level. Extended analyses are further conducted from three perspectives: industrial network linkages, vertical interactions across policy hierarchies, and strategic trade-offs in urban industrial structure. Our findings indicate that local industrial policies significantly promote foreign firm entry, with fiscal support and credit facilitation serving as the transmission channels. This effect is more pronounced in cities with superior business environments and higher industrial agglomeration, as well as in labor-intensive industries. The policies also demonstrate stronger attraction for capital from developing countries, large-scale foreign enterprises, and joint ventures. Furthermore, industrial policies generate positive backward spillovers and negative forward spillovers. The investment-promotion effect of policies is significantly attenuated when they simply mirror provincial policies. And “strength-building” strategy that leverages local comparative advantages yields superior outcomes in enhancing foreign direct investment attractiveness. This study provides novel empirical evidence on policy-driven investment attraction in the Chinese context and offers actionable policy insights for local governments to achieve targeted foreign investment promotion.

Key words: industrial policy, foreign firm entry, industrial linkages, vertical policy interactions, industrial structure trade-offs