TheLand said:They can indeed. A capitalist will only build a factory in the province it lives in, and will build them as it sees fit , aiming to make as much money as possible: however they pay no attention to whether there will be enough goods to supply the factory!
I am not sure whether there is a condition that they will try to improve al lthe railways in that territory first.
Not 100% true Capitalist pay no attention to whether you can supply the factory, they will not build a factory if the WM cannot supply it. Capitalists will build railways anywhere in your country, even in colonies.