Indigenous Innovation in China - an empirical analysis of the machinery and equipment industry in Lingang (YRD) and Shunde (PRD)

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Within three decades of applying a growth model based on exports and foreign direct investment (FDI), China has become one of the worlds largest producers of industrial goods. The country hoped that world market integration and FDI would lead to substantial knowledge inflow and eventually result in innovation made in China. However, Chinas firms have benefitted from knowledge inflow and technical upgrading, but true innovations remain a rare exception. Hence, the Chinese government has started stressing the need for indigenous innovation (zizhu chuangxin), that should emerge independent from foreign companies, based on domestic R&D activities, focused on the domestic market, and supported by the government. From the angle of economic geography it seems clear that only a few regions within China possess the necessary concentration of technically advanced companies, supporting education and research organization, and well-functioning public administration to allow for indigenous innovation to materialize. These regions are the capital region Beijing, the Yangtze river delta (YRD) including Shanghai, and the Pearl river delta (PRD). The academic debate around the topic of indigenous innovation highlights two questions. First, it is not clear, to what degree a focus on indigenous innovation can support a successful growth model. Secondly, the role of regional economic structures and environments for supporting indigenous innovation is under debate. This research project wants to carry out comparative research on machinery and equipment companies in two cities in order to contribute to an empirically more informed discussion of these questions. The machinery and equipment industry is a wellsuited example in this con-text because of the following features: FDI is of relatively minor importance in this field, and for technical reasons the production process is marked by a low degree of vertical disintegration. Thus, global production networks do not dominate in this industry, and state support for individual companies, e. g. in form of investment incentives, play a larger role. From the German perspective, Chinese companies more and more become serious competitors in some sub-sectors of the field. The case study regions will be the two cities of Lingang located in the YRD, characterized by government support and proximity to public R&D organizations and Shhunde located in the PRD, and characterized by privately owned companies and a strong focus on the domestic market.