In this study, we examine the location strategies (e.g., developing versus developed countries) of Chinese multinational firms (Pantzalis 2001). We argue that domestic firm‐specific ownership advantages of a firm, in the form of larger size and higher degree of diversification, will induce internationalization into developed countries rather than into developing countries. We also predict that internationalization into developed countries will help performance, but internationalization into developing countries will hurt performance. Based on an analysis of data on 154 Chinese‐listed MNCs from 1992 to 2002, we find support for our predictions.