Search

The present study examines both the impact of foreign direct investment, mainly in the form of MNCs, on technological capability 1) within their affiliates (including joint venture), and 2) of related firms in the same chain of production (with a focus on backward linkages via subcontracting), and the learning progress of locals under the existing economic policy in China. Using the automotive and elevator sectors as samples, the study investigates the choice of contractual arrangements for technology transfer by the MNCs, Volkswagen AG(VWAG) and Schindler Elevator(SE); the transfer of technical and non-technical skills from MNCs to locals under such arrangement; the creation of backward linkages between their affiliates and domestic firms; and the constraints on technological effort of these firms. The study finds, on the basis of empirical studies in China, that the compromised arrangement --- joint venture chosen by VWAG and SE as the 'first best' strategy provides a business framework for technology transfer. Gaining access to the technologies of product and production from MNCs under such business framework is significant for filling the gap between existing technologies in old plants and technologies in the 1980s. Moreover, the study finds that backward linkages by MNCs can be important to the host country for increasing local production and upgrading local industrial capacity. The study also finds that the failures of technological effort in China can be traced directly or indirectly to economic policies. It appears that the same set of policies has resulted in some of its achievements. However, it is likely that these failures would have been less weighty, if a different set of policies had been adopted in a properly balanced way.