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Innovation, entrepreneurship and institutional change of China

  • School: Nottingham Business School


The proposed research aims to inform public policy concerning the role governments can play in fostering innovation in commercial enterprises. As part of the plan for post-Brexit Britain, the UK Government has spearheaded a new “modern industrial strategy” and published a Green Paper, Building our Industrial Strategy. At its core, the government wants to understand what role it should play in fostering innovation in commercial enterprises and how to help them develop into the next Arm Holdings. Four decades of laissez faire economics means that there is very limited data on industrial strategies in the UK. China on the other hand is a treasure trove of information. Previous research on this topic has been limited and the existing work do not differentiate between industries.

By looking within specific industries, we can compare like with like thus yielding results that are more accurate. Our research will focus on the data rich manufacturing and technology sectors to determine the magnitude and effectiveness of innovation between state owned enterprise and private enterprises.

In theory, differing characteristics of industries and ownership structures should result in differing levels of innovation efficiency. The existing research lacks the quantitative analysis and tests of the differing levels of innovation efficiency between the different industries. Although some studies have indicated that state-owned enterprises are more innovative than private enterprises due to: externalities in the generation of intellectual property; government encourages and guides the innovation of state-owned enterprises through intellectual property protection, greater resource allocation towards innovation and supply of fundamental knowledge; more effective in alleviating the problem of market failure in knowledge production (Choi et al 2011). However, most research concludes that state-owned enterprise innovation efficiency is lower than that of private enterprises, Hong Kong, Macao and Taiwan owned enterprises and foreign owned enterprises. The main reasons given are the following: Firstly, the principal-agent problem.

The incentive and restraint mechanism of state-owned enterprise managers is imperfect, resulting in state-owned enterprise executives making decisions based on their own interests, ignoring the efficiency of their enterprise including innovation efficiency. This causes waste of state-owned assets and inefficient allocation of resources (Zhang 1997). Secondly, most state-owned enterprises adopt the pre-bureaucratic supervisory mechanism, which can easily lead to project selection error, and delay innovation. In addition, soft budget constraint can cause innovation efficiency loss (Qian & Xu 1998, Huang & Xu 1998).


Choi, S.B., Lee, S.H., Williams, C. 2011 Ownership and firm innovation in a transition economy: Evidence from China, Research Policy, 40 (3), 441-452.

Huang H., Xu C., 1998 Soft Budget Constraint and the Optimal Choices of Research and Development Projects Financing, Journal of Comparative Economics, 26 (1), 62-79.

Qian Y., Xu C. 1998 Innovation and Bureaucracy under Soft and Hard Budget Constraints, Review of Economic Studies, 65 (1): 151-164.

Zhang W., 1997 Decision Rights, Residual Claim and Performance: A Theory of How Chinese State Enterprise Reform Works, China Economic Review, 8 (1): 67-82.


Dr Zhongmin Wu

Entry qualifications

To be eligible to apply you must hold, or expect to obtain, a UK Masters degree (or UK equivalent according to NARIC) with a minimum of a merit, and / or a UK first class or 2.1 BSc (or UK equivalent according to NARIC) in a relevant subject.

How to apply

Please visit our how to apply page for a step-by-step guide and make an application.

For informal enquiries about this project, please email Zhongmin Wu.

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Zhongmin Wu