The Effects、Cause of Capital Substitution and Policy Response

There is either substitution or complement between domestic capital and foreign capital.This paper succeeds in optical substitution model by means of mathematics deduction,then makes experience analysis of introduction of foreign capital from 1994 to 2000 applying this model and draws an conclusion that there is serious substitution in China,which accords with general views and facts. On this basis,this paper also makes detail analysis of mechanism in capital substitution and factors of supply and demand,and finally makes suggestion of policies of anti-substitution.