A Theoretical Model And Empirical Analysis Of Wholly-foreign-owned Enterprises In China

Based on traditional theories of firm's equity structure, this paper develops a theoretical model of equity composition in foreign direct investment (FDI) projects which is fitted to explain Trendy multinational corporations incline to choose whole ownership other than joint venture in 2000s. The model pinpoints the key characteristics of the firm and country that influence equity choice. Guided by the model, we proposes several hypotheses about changes of equity structure in foreign direct investment in China and conduct an empirical study using related data of Shanghai, Beijing, Tianjin, Jiangsu province, Zhejiang province, Shandong province and Fujian Province. Empirical results support most of our hypotheses. The results are as follows:Nationalization level is negatively related to the proportion of wholly-foreign-owned enterprises in Shanghai, Beijing, Jiangsu, Guangdong and Fujian provinces; Also, market scale is positively related to the proportion of wholly-foreign-owned enterprises in Shanghai, Beijing, Guangdong and Fujian provinces; Openness of economy is positively related to the proportion of wholly-foreign-owned enterprises in Shanghai, Beijing and Jiangsu province; Furthermore, education level of labors is positively related to the proportion of wholly-foreign-owned enterprises in Shanghai, Jiangsu, Guangdong, Zhejiang and Fujian province; Empirical results show that policies have no significant influences to the increasing wholly-foreign-owned enterprises in China. According to the above results, suggestions about FDI policy in China are presented.