The author investigates the innovative behavior of large and medium-sized manufacturing enterprises in China. It is revealed that in-house research and development (R&D) efforts, rather than imported technologies, are the primary sources of industrial innovation in China. Regarding in-house R&D efforts, it is found that in-house R&D laboratories are important sources for the creation of new products as measured by patents, though it is enterprise-wide R&D spending rather than the mere presence of in-house facilities that is more likely to lead to market success. Concerning importation of technologies, it is revealed that the limited nature of efforts to absorb imported technologies has become a serious barrier to fulfilling the potential of these technologies and to upgrading China's internal creative capabilities. In addition, domestic technology markets have not been effectively linked to large and medium-sized industrial enterprises, despite China's enduring efforts in this direction since the middle 1980s. It is therefore concluded that the organization of R&D activities in China's industrial enterprises is still fragmented, with only weak linkages between technology importation and assimilation, between industrial R&D and domestic technology markets, and between business and R&D activities within enterprises.
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