Technological capabilities and foreign direct investment in China
The desire for international technology transfer was probably the most important consideration when China’s leadership adopted its open door policy in the late 1970s. However, this was not the first attempt of China to acquire advanced technology from abroad. In fact, since the establishment of the People’s Republic, the acquisition of foreign technology has been the locomotive of China’s drive towards industrialisation that is the top priority in her economic development strategy. In the past, however, technology acquisition by China was exclusively through the channel of arm’s length transactions. Before the reform of 1979, technology transfer in China was confined to imports of foreign technology by state owned enterprises (SOEs) (Zhao 1995). The channel of transferring technology through foreign direct investment firms did not exist, since foreign ownership of the means of production in China was contrary to the ruling ideology at that time.