China’s Innovation Boom: Miracle or Mirage?

Discussion Papers

No.777

by Wenyin Cheng,  Bo Meng, Yuning Gao

March 2020

ABSTRACT

Is China’s innovation boom a miracle or mirage? As a comprehensive national innovation development strategy, China’s National Technology Zone (NTZ) pilot provides an excellent natural experiment for the analysis of this phenomenon multidimensionally. Using unique Chinese Patent Census Database and matching it with Chinese Industrial Firm Census Database, this paper shows that the establishment of NTZs has promoted firm innovation, as well as innovation in high-tech industries and indigenous innovation, measured by both the quantity and the quality of invention patents. In this sense, China is creating an innovation miracle in general. More evidence from our results shows that both firm–academia collaboration and FDI inflows play significantly positive roles in China’s achievement of this miracle. However, there are also two types of innovation mirages: 1) there is no significant impact of NTZs on the quality of patents after the financial crisis of 2008, which might be attributed to the relatively radical macro planning; 2) the establishment of NTZs has brought enhancement of patent quality for state-owned enterprises (SOEs) but not for non-SOEs, which might be ascribed to the imperfect market institution. Finally, we provide some policy suggestions on the basis of our analysis.

Keywords: China’s innovation boom, patent quality, indigenous innovation, patent citation, innovation development strategy

JEL classification: L25, O38, R15

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