Innovation versus imitation: Where all that Chinese R&D is going

China is aiming to become a technological innovation powerhouse by 2050, with Premier Li Keqiang recently announcing an increase in R&D investments by 7% for the next five years. But greater R&D investment is no guarantee of success. This column examines the effects of R&D investments by Chinese firms on aggregate productivity and growth. The authors find that innovation plays an important role in China’s growth process, productivity of innovation could be substantially enhanced by reducing distortions in the economy, and further stimulating R&D expenditure is neither necessary nor sufficient to sustain growth