Betting on indigenous innovation or relying on FDI: The Chinese strategy for catching-up

Abstract

This paper characterizes the national innovation system (NIS) built up in China and analyses whether this NIS is helpful for China to catch up. Our research methodology is based on the combination of the theoretical contributions of the new growth theory and the NIS approaches, but also benefits from empirical evidence collected during an OECD research project targeted at the study of the Chinese NIS. We find that the Chinese NIS is composed of two complementary building blocks: an FDI-based innovation system and an indigenous innovation system. If both systems are shown to have a positive influence on China’s catching-up process, the indigenous innovation system however does not seem as influential as the FDI-based one. We suggest that the Chinese NIS should be reconsidered and designed in such a way to be able to improve the absorption and innovation capability of domestic firms and to strengthen university–enterprise interactions.