This article intends to explain the interaction between the local innovation systems and the knowledge intensive type of foreign direct investment (FDI) in China since the mid-1990s.1 Since this period, more than thirty large multinational corporations (MNCs) have located their wholly-owned R&D centers in Shanghai because of its rich knowledge assets, competitive market, agglomeration of IT industrial cluster, and effective and flexible local governance. More importantly, the localisation of these R&D centers does not result in an isolated high-tech colony, but technology spillover in the form of new spin-offs, the mobility of trained engineers between MNCs and local firms, and the creation of a new technology research field through MNCs-University joint research labs. This in turn enriches and restructures Shanghai's existing innovation systems.
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