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The nation-wide introduction of foreign technology in China has been going on for over 20 years. This paper examines the R&D incentive of the Chinese innovators by analyzing the patent data for the period from 1985 to 1999. The following findings were obtained. First, individual innovators, as opposed to industrial enterprises and research institutes, have been supplying over 70% of all patent applications filed domestically. Second, innovators in China, including the industrial enterprises, have been devoting their R&D resources disproportionately to small innovations, rather than major ones. Third, the large and medium-sized enterprises are not yet the main force for innovation in China. The impacts of industrial structure on R&D incentive are emphasized. Regression analysis for 37 manufacturing industries in China shows that R&D output, measured by the number of patents per firm, is positively related to the eight-firm concentration ratio. I also analyze the microeconomic channels through which the vertical structure of an industry affects firm incentive to absorb imported technologies. “Excessive competition” and a low degree of vertical integration in Chinese industries are major factors leading to small-scale innovation, high propensity to purchase foreign technologies, and low propensity to absorb them. Establishing enterprise groups that are truly subject to market discipline can speed up the “imitation-first-and-then-innovate” process.


CPPS Working Paper Series No.128 (12/02)

Recommended Citation

Lin, P. (2002). R&D in China and the implications for industrial restructuring (CPPS Working Paper Series No.128). Retrieved from Lingnan University website: