This paper uses the prevailing approaches found in the literature examining the foreign ownership structure of FIEs in China with an emphasis of Chinese firms seeking to form alliances with foreign firms.6 Our interest revolves around the institutional environment for local firms and is premised on the idea that the relevant host-country factors for examining foreign ownership question go well beyond the traditional focus on FDI policies and political risks.Each FDI project requires contributions from both foreign and local firms.In view of analytical tractability,we have chosen firms-joint ventures-that have explicit contributions from local firms.?The prevailing approach in studies of ownership structure of FDI projects is to view the equity structures as an outcome of bargaining between foreign and host firms(or host governments).Bargaining,in turn, is treated as a function of the preferences for forming alliances and the capabilities to make resource contributions to the alliances on the parts of foreign and host firms.8 We adopt the same approach here,except for the fact that we pay closer attention to those factors that affect the preferences/capabilities of local firms. Approaching the foreign ownership question from a local perspective leads us naturally to a consideration of some of the institutional factors that have been featured prominently in the 6 It is explicitly acknowledged in previous studies that the capabilities and resources of local firms affect the ownership structures of FDI projects.For example,Asiedu and Esfahani(2001)incorporate several measures of local resource contributions.However,these variables are not critical in their conceptual framework. 7 This framework applies equally to wholly-owned foreign subsidiaries which do not have explicit contributions from local firms.We then want to determine the host-country factors that reduce the local contributions to zero. s The theoretical underpinning that links these industrial characteristics with bargaining power dynamics is the transaction cost framework.Theoretical literature includes Sveinar and Smith (1984),Hennart (1988)and Kogut (1988).For empirical applications,see Krobin(1987),Gomes-Casseres(1990)and Asiedu and Esfahani(2001). 66 This paper uses the prevailing approaches found in the literature examining the foreign ownership structure of FIEs in China with an emphasis of Chinese firms seeking to form alliances with foreign firms. 6 Our interest revolves around the institutional environment for local firms and is premised on the idea that the relevant host-country factors for examining foreign ownership question go well beyond the traditional focus on FDI policies and political risks. Each FDI project requires contributions from both foreign and local firms. In view of analytical tractability, we have chosen firms—joint ventures—that have explicit contributions from local firms.7 The prevailing approach in studies of ownership structure of FDI projects is to view the equity structures as an outcome of bargaining between foreign and host firms (or host governments). Bargaining, in turn, is treated as a function of the preferences for forming alliances and the capabilities to make resource contributions to the alliances on the parts of foreign and host firms. 8 We adopt the same approach here, except for the fact that we pay closer attention to those factors that affect the preferences/capabilities of local firms. Approaching the foreign ownership question from a local perspective leads us naturally to a consideration of some of the institutional factors that have been featured prominently in the 6 It is explicitly acknowledged in previous studies that the capabilities and resources of local firms affect the ownership structures of FDI projects. For example, Asiedu and Esfahani (2001) incorporate several measures of local resource contributions. However, these variables are not critical in their conceptual framework. 7 This framework applies equally to wholly-owned foreign subsidiaries which do not have explicit contributions from local firms. We then want to determine the host-country factors that reduce the local contributions to zero. 8 The theoretical underpinning that links these industrial characteristics with bargaining power dynamics is the transaction cost framework. Theoretical literature includes Svejnar and Smith (1984), Hennart (1988) and Kogut (1988). For empirical applications, see Krobin (1987), Gomes-Casseres (1990) and Asiedu and Esfahani (2001)