Fiscal policies for innovation in China: challenges of the transition to an ecosystem approach

Abstract

In light of recent decisions to strengthen the governance of science and technology in China, this study examines fiscal policies designed to promote innovation. The article shows that the reforms undertaken by the Chinese state has broadened the policy mix of fiscal support instruments with a transition from a top-down linear model to a market-based national innovation ecosystem approach. This ecosystem approach features increased funding for basic research and infrastructure for advanced research, together with targeted subsidies for joint research and development (R&D) in whole-of-the nation projects. Moreover, local governments have increased their support through tax incentives related to R&D and high-tech enterprises, and capital investments through industrial guidance funds. Nevertheless, the article’s analysis also indicates that this policy mix continues to encounter challenges in the implementation of policy instruments and the headwinds of geopolitical tensions, as illustrated by a case study of the mix of fiscal support for scientific research and technological innovation in the semiconductor sector and value chain.