This chapter begins by describing the evolution of foreign direct investment (FDI) in China, and the types of innovative firms in China. From a typology of the most significant forms of innovative Chinese enterprises, the special significance of the role of international joint ventures (IJVs) is explained. IJVs have been central to the connections between innovative firm capability building in China and the capacity to learn from, transfer, and absorb technological knowledge from multinational companies originating from mature industrialized countries. Original IJV survey evidence is used to show how capability building in IJVs depended critically upon the integration of their activities with foreign parent companies, and how local technology adaptation in China has resulted in distinctively new innovations. The increasing technological interdependence between different categories of innovative firms in China is discussed, as is the relationship between firm capability building and policy.
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