What Matters for Industrial Innovation in China: R&D, Technology Transfer or Spillover Impacts from Foreign Investment?

This study examines the relationship between industrial output and in-house R&D, technology transfer and spillovers from foreign investment in China using the most recent economic census data (2004) published by the Chinese State Statistical Bureau in 2006. It reveals that none of the three factors - in-house R&D, technology transfer and spillovers from foreign investment - can effectively explain the sectoral differences of output. The study also reveals that capital and state-owned enterprises (SOEs) show consistent and significant impacts on output, where capital demonstrates positive impacts while SOEs show negative impacts. Also interesting is that the impact of export on industrial differences of output is insignificant, though still positive. Such results cast serious doubts on the sustainability of China's strategy of relying on foreign investment, export and its recent innovation drive.