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Capital or knowhow: The role of foreign multinationals in Sino-foreign joint ventures

Chong-En Bai, Jiangyong Lu and Zhigang Tao ()

China Economic Review, 2010, vol. 21, issue 4, 629-638

Abstract: China's success in attracting foreign direct investment has been cast in doubt as mainly a transfer of capital, not knowhow, because its financial system is incapable of allocating domestic savings and hard-earned foreign reserves to domestic enterprises. To shed light on this debate, we examine the determinants of equity sharing in Sino-foreign joint ventures with the premise that the roles of foreign direct investment (in transferring capital or knowhow) should be reflected in equity sharing between multinational firms and local firms. Our empirical analysis offers strong evidence for foreign direct investment as a transfer of knowhow, but limited support for foreign direct investment as a transfer of capital, which points to the need for further reform in China's financial system.

Keywords: Foreign; direct; investment; Multinational; firms; Equity; joint; ventures; Capital; Knowhow (search for similar items in EconPapers)
Date: 2010
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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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