R&D of Multinationals in China: Structure, Motivations and Regional Difference

In this paper, the motivations of R&D by multinationals are investigated by using a large firm level dataset from Chinese official statistics on science and technology activities. Growing intensity of R&D activities is found both for foreign owned and domestic firms. But, it is also found that the R&D intensity at foreign owned firms is relatively smaller. This may be due to the fact that foreign owned firms are operating by relying of technological capabilities at home. Statistical analysis confirms that the major motivation of foreign R&D in China is “market driven” instead of “technological driven” or “human resource driven”. However, there is a great variation of foreign R&D strategy across regions. Market driven R&D is found mainly in Guangdong, which is called a world IT factory, and does not have strong universities or PRIs. In contrast, R&D strategy in Beijing is oriented toward technology driven approach, because we can find a cluster of scientific institutions there. Shanghai, with both a large industrial base as well as strong science sector, is in-between. JEL Classification: O31, O32