Does Chinese FDI policy promote technological spillovers?


Bruce Blonigen & Alyson C. Ma have a very interesting piece up at VoxEU:

The allegation: China extracts rents and technology from foreign competitors, thus allowing it to grow even faster and longer than most would have imagined possible. The evidence: China’s industrial policies have been successful in attracting foreign investment, but not necessarily in increasing the sophistication of its own firms through technology transfer…

First, while China’s range of exported products overlaps more with OECD countries than other less-developed countries, China sells these more-sophisticated products at a very large discount relative to competitors. This suggests that they are breaking into these “sophisticated” categories with relatively low-quality offerings. Interestingly, the Chinese discount in these products relative to OECD countries has been growing over time, not diminishing.

Second, if one looks at firm-level productivity data, foreign-owned firms in China are currently nine times more productive than their Chinese-owned counterparts!…

There are also a few other pieces of evidence from the analysis of Chinese trade data that argue against any effective role for Chinese industrial policy in these areas. First, price/quality gaps do not close at all for sectors targeted by the Chinese government for foreign investment encouragement or for ones where foreign firms are restricted to have a domestic partner. Second, price/quality gaps do not close more in high-technology sectors that are supposedly being targeted by the Chinese government.