China's Technology Subsidies - Much ado about nothing?

This study investigates the allocation and effect of technology subsidies on R&D activities and technology acquisitions of Chinese domestic firms. We exploit novel firm data which includes information on subsidies, R&D, patents, trade, and balance sheet indicators. Conditional difference-in-difference estimation confirms that the innovation policy of China s government follows a picking-the-winner strategy. Technology subsidies are allocated to minority state-owned and privately owned firms which have high-tech inventions, high profitability, and compete with foreign firms in domestic industries. However, we find almost no evidence which confirms that technology subsidies incentivize an increase in R&D intensity or technology acquisition. There is weak evidence for a positive effect of consecutive treatments.