solution to a nagging problem in research on this topic-how to precisely measure the institutional environment for domestic private firms. This paper is organized as follows.It begins by our tale of the two provinces to show how the institutional environment for private sector differs from each other.In the second section,we formulate four hypotheses about the institutional determinants of the equity structures of FDI projects.The third section explains the dataset and the construction of the variables and describes the findings from the statistical analysis.The last section is devoted to concluding remarks. 2.A tale of two provinces It is well recognised in the studies of Chinese economy that there is considerable institutional heterogeneity at the regional level in China.The Chinese reforms are often described as"federalism,Chinese style"following a prominent formulation of the Chinese reform model in which local governments are endowed with substantial discretion in economic decision making(Qian 1999).Our two provinces are good illustrations of"federalism,Chinese style".In the 1980s and up to the mid-1990s,Jiangsu imposed more stringent legal and financial constraints on private sector than Zhejiang did.This well-documented difference between the two provinces allows us to test the effect of the institutional environment on the ownership structures of foreign affiliates in China. 2.1.Profiles of Jiangsu and Zhejiang Table 1 presents some basic statistics about the two provinces.In terms of geographic location,both provinces are located on the eastern coast of China.Jiangsu is larger in terms of 99 solution to a nagging problem in research on this topic—how to precisely measure the institutional environment for domestic private firms. This paper is organized as follows. It begins by our tale of the two provinces to show how the institutional environment for private sector differs from each other. In the second section, we formulate four hypotheses about the institutional determinants of the equity structures of FDI projects. The third section explains the dataset and the construction of the variables and describes the findings from the statistical analysis. The last section is devoted to concluding remarks. 2. A tale of two provinces It is well recognised in the studies of Chinese economy that there is considerable institutional heterogeneity at the regional level in China. The Chinese reforms are often described as “federalism, Chinese style” following a prominent formulation of the Chinese reform model in which local governments are endowed with substantial discretion in economic decision making (Qian 1999). Our two provinces are good illustrations of “federalism, Chinese style”. In the 1980s and up to the mid-1990s, Jiangsu imposed more stringent legal and financial constraints on private sector than Zhejiang did. This well-documented difference between the two provinces allows us to test the effect of the institutional environment on the ownership structures of foreign affiliates in China. 2.1. Profiles of Jiangsu and Zhejiang Table 1 presents some basic statistics about the two provinces. In terms of geographic location, both provinces are located on the eastern coast of China. Jiangsu is larger in terms of