Ownership and innovation in China‟s manufacturing sector: Evidence from the first and second national economic census

Abstract

Based on data recently released from the first and second national economic census, this study investigates the innovative behavior and performance of manufacturing enterprises in China by ownership forms. Empirical analysis identified systematic differences in both innovative inputs and outputs among state-owned and controlled enterprises (SOEs), domestic non-state enterprises and foreign owned enterprises. SOEs have been found to outperform other ownership forms in innovative performance measured by either new product development or granted invention patents. However, more detailed statistical tests of the innovative efficiency of SOEs revealed a negative relationship between the share of state capital in capital structure and their innovative outputs. The empirical findings suggest that the superior innovative performance of China‘s SOEs is not reflective of the innate efficiency of public ownership, but rather the distinctive market and institutional environment in China‘s transitional economy that affected the financial sources and motivations for technological innovations in non-state owned firms.