Abstract: The staffing for oversea subsidiaries in China is characteristic of expatriation for top and middle level managers and localization for low level managers. It is proposed that such a staffing decision results from its low transaction costs. And a bunch of transaction costs including recruitment costs, training and internalization costs, monitoring costs, and enforcement costs are discussed. Then, a series of hypotheses on the basis of theory analysis is formulated. With a sample of 151 subsidiaries in China, an empirical study is constructed to test the hypotheses. Empirical results may clearly explain the paradoxbetween the cost reductionprinciple and the costly recruitment of expatiation.