This study separates MNCs knowledge transfer into headquarters knowledge transfer and peer subsidiary knowledge transfer, investigates the influence a focal subsidiary capability and performance. Drawing on the resource-based view and dynamic capability and using data from 167 foreign subsidiaries in China, we find that both headquarters knowledge transfers and peer subsidiary knowledge transfer influence a focal subsidiary’s capabilities in a positive way, but at different rates. Our results further show that while a focal subsidiary’s innovative culture strengthens the effect of headquarters knowledge transfer on its capabilities, it weakens the impact of peer subsidiary knowledge transfer. In addition, we find a focal subsidiary capability plays mediating role between headquarters knowledge transfer and performance, innovative culture and performance. More results and their implications are discussed toward the end.