bargaining power may lead to a decrease of share of foreign ownership of production assets in joint ventures. We choose to focus on Jiangsu and Zhejiang for both methodological and substantive reasons.First,we impose some implicit restrictions on the supply side of FDI.After satisfying a number of our criteria,most of the surviving joint ventures in these two provinces turn out to be quite small.This characteristic,together with the availability of the detailed industrial classifications,reduces the variance of prominent FDI supply variables such as market positioning of firms,intangible assets,and R&D capabilities.Second,we ensure to maximize the variation on the demand side.These two provinces exhibit substantial-and well-documented- variation in the institutional environments for domestic private firms.This makes it easier for us to examine the institutional determinants of the ownership structures of FDI projects.During the studied period,the two provinces pursued very different policies towards domestic private sector, with Jiangsu imposing financials and legal constraints on domestic private firms and Zhejiang adopting a more supportive policy.The contrast between these two provinces has long been familiar to Chinese scholars (although far less to foreign scholars),but our paper is among the first to systematically explore the effect on FDI caused by the difference in their policies towards domestic private sector These two provinces make as ideal a natural experiment as one can find.Both provinces started out in the early 1980s with similar levels of economic and social development and with a similar domestic private sector size.Both are open to foreign trade and FDI and have a long history of entrepreneurship.Their geographic conditions are almost identical.Both are coastal provinces and are located next to each other.The substantial similarities between these two provinces in many respects and their well-documented policy differences furnish us with a 68 bargaining power may lead to a decrease of share of foreign ownership of production assets in joint ventures. We choose to focus on Jiangsu and Zhejiang for both methodological and substantive reasons. First, we impose some implicit restrictions on the supply side of FDI. After satisfying a number of our criteria, most of the surviving joint ventures in these two provinces turn out to be quite small. This characteristic, together with the availability of the detailed industrial classifications, reduces the variance of prominent FDI supply variables such as market positioning of firms, intangible assets, and R&D capabilities. Second, we ensure to maximize the variation on the demand side. These two provinces exhibit substantial—and well-documented— variation in the institutional environments for domestic private firms. This makes it easier for us to examine the institutional determinants of the ownership structures of FDI projects. During the studied period, the two provinces pursued very different policies towards domestic private sector, with Jiangsu imposing financials and legal constraints on domestic private firms and Zhejiang adopting a more supportive policy. The contrast between these two provinces has long been familiar to Chinese scholars (although far less to foreign scholars), but our paper is among the first to systematically explore the effect on FDI caused by the difference in their policies towards domestic private sector. These two provinces make as ideal a natural experiment as one can find. Both provinces started out in the early 1980s with similar levels of economic and social development and with a similar domestic private sector size. Both are open to foreign trade and FDI and have a long history of entrepreneurship. Their geographic conditions are almost identical. Both are coastal provinces and are located next to each other. The substantial similarities between these two provinces in many respects and their well-documented policy differences furnish us with a