China’s automobile industry has gradually given up self-development since the advent of sino-foreign joint venture in 1980s. At present, the automobile industry mainly depends on the assemblage and manufacturing of foreign brands with the help of imported technology. This goes against Chinese government’s original intention, which was to trade the Chinese market for advanced technology through joint venture and assimilate the technology to eventually enhance China’s capability for indigenous innovation. However, as a result of the over-reliance on joint venture, China’s auto market has long been monopolized by foreign brands and the core technology of her automobile industry is predominantly foreign. The goal of indigenous innovation is still a far cry. In this paper, we attempt to answer the following questions: Why didn’t the strategy of open and independent development based on “trading market for technology” work? Why didn’t our automobile industry quickly shift from the assemblage of foreign auto brands to self-development, like the case of Korea? Why did China’s communication equipment industry, which also implemented the similar “trading” strategy, quickly start independent research and technological innovation and build up powerful private enterprises? Apparently, there should be more fundamental and internal roots leading to the complete reliance of China’s automobile industry on joint venture. This paper mainly adopts a single-case analysis, complemented with a comparative analysis of multiple cases. The reason for the single-case analysis is that China’s automobile industry is a typical failure in the “trading market for technology” strategy. Korea’s automobile industry and China’s communication equipment industry have been chosen for comparative analysis because both of them are successful cases of the strategy. (1) It is China’s industrial structure and incentive system that constrains the strategic decision-making of auto companies. The various factors which accompany joint ventures, such as technical threats from foreign partners, disorderly competition at home, coordination failures of the government, and pressure on short-term performance, etc., have forced the auto companies to give up self-development and turn to foreign brands and technologies. Among these factors, the coordination failures of the government resulting in an excessively-scattered industrial structure and disorderly competition, have brought pressure to the performance of the enterprises and are the two fundamental causes which explain the strategic failure. (2) The innovation system of China’s automobile industry also contributed to the failure of its indigenous innovation. This is mainly manifested in two aspects. First, the failure to establish government-led research institutes results in the lack of a scientific research system which supports self-development. When China’s major auto companies were intent on acquiring foreign production technology and management models through joint venture, the automobile industry had no organizations to replace state-owned enterprises in learning advanced technologies and achieving self-development, as it lacked company-independent research institutes of public technology. Second, in the later stage of development, public policies did not change from market protection to free market entry. Therefore, more innovation-conscious private enterprises could not take the place of state-owned enterprises in initiating indigenous innovation because they did not have the opportunity to enter the market earlier, and thus did not realize the transformation from joint-venture dominance to local-company dominance.