Knowledge transfer to China: policy lessons from foreign affiliates

The recent strategy of the Government of China has been to attract foreign direct investment in order to obtain foreign technology and capital. There is an official preference for advanced technology, and for its rapid diffusion to domestic firms. This approach underpins the joint-venture legislation applicable to most parts of the manufacturing sector. Using four case studies of foreign affiliates, this article investigates ways in which policy on foreign ownership has shaped the knowledge-management and knowledge-transfer strategies of transnational corporations in China. The obligation to form a joint venture often generates partnerships in which goal conflicts are rife, resulting in the transfer of knowledge diminished in quantity and quality, and slowing the rate of transfer. In most manufacturing industries, ownership restrictions are now largely relaxed, but not so in many services. These findings question the efficacy of policies restricting foreign ownership in order to promote knowledge transfer and foster local technological capacity.