This study systematically examines foreign R&D in China’s manufacturing industries, using the most recent census data published by China’s State Council. It reveals that foreign firms are committing less R&D resource than China’s domestic enterprises. Foreign R&D activities are far more active in high-tech industries than in labour-intensive industries. This study also demonstrates that China’s dynamic domestic market and export, as well as its large pool of well-educated labour are the major drivers for foreign R&D, while the technology drive is not significant yet. Finally, the result shows that foreign firms are less likely to conduct R&D in sectors where they possess strong advantages. Such results suggest that the Chinese governments and domestic firms should focus on building up indigenous innovative capabilities in order to attract more foreign R&D: the majority of foreign firms will invest in R&D when they feel the competition from domestic firms.
Keywords: globalisation, research and development, R&D, multinational corporation, MNC, comparative advantage, sectoral distribution, manufacturing, China