Understanding Contractual Joint Ventures in China

Contractual Joint Ventures (CJVs) in China have been under-studied despite their importance as one of the three major forms of foreign direct investment (FDI) prescribed by the Chinese government. Based on first-hand survey data and within a transaction cost-comparative institution framework, the paper conceptualizes the nature of CJVs as a relational subcontracting arrangement rather than a form of FDI. Formed mainly between Hong Kong and Chinese manufacturing firms in the South China province of Guangdong, CJVs display quasi-market and quasi-hierarchy features, sitting between Processing and Assembling arrangements (P&As) on the one hand and Equity Joint Ventures (EIVs) and Wholly Foreign Owned Enterprises (WFOEs) on the other. The theoretical and practical implications are discussed.