Abstract: The relation between the vertical specialization and Total Factor Productivity (TFP) in the period of 2001-2008 is analyzed using the panel data of Chinese industrial sector. Firstly the DEA-SBM model is used to estimate TFP index, then the technology spillovers of vertical specialization on domestic-funded enterprises are empirically tested. The results showed that domestic-funded enterprises did not gain significant technology spillover effect from vertical specialization.