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Abstract After over 40 years of development through reform and opening up, China’s economy has transitioned from high-speed growth to high-quality development. However, its innovation capability has not yet fully met the requirements of achieving high-quality economic development. To shape the nation’s competitive advantage, enhancing enterprises’ independent innovation capacity is imperative. General Secretary Xi Jinping pointed out in the report of the 20th National Congress of the Communist Party of China: “We should open up new areas of development and create new drivers of growth to make continuous progress in developing new strengths and potential.” The Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and Long-Range Objectives Through the Year 2035 proposes forward-looking strategies for future industries. Pioneering innovative directions and achieving new technological breakthroughs provide important scientific and technological support for opening up new areas and tracks, shaping new impetus and new advantages, and cultivating future industries.
The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China explicitly encourages enterprises to increase their research and development (R&D) investment, implementing tax incentives for basic research. The policy of the super-deduction of R&D expenses plays a central role in China’s tax policy system to stimulate corporate innovation. It is written into the important guiding documents such as the “National Innovation-Driven Development Strategy Outline” and the “13th Five-Year National Science and Technology Innovation Plan.”Evaluating whether this policy can promote enterprises to explore new innovative directions, enhance their independent innovation capabilities, maintain sustainable innovation, is of great significance to improving the efficacy of the national innovation system, achieving scientific and technological self-reliance and self-improvement, and even realizing the goal of building a socialist modernized strong nation.
Existing literature has mainly focused on the quantity of innovation while neglecting the crucial role of innovation direction. This study compiles data on the tax incentives for the super-deduction of R&D expenses enjoyed by companies listed on the Shanghai and Shenzhen stock exchanges between 2014 and 2018. Using this data, the actual beneficiaries of the super-deduction of R&D expenses policy are effectively identified. Additionally, following the classification methods of Ahuja & Morris (2001), and referencing the “International Patent Classification (2016)” (IPC classification) and the “International Classification for Industrial Designs (8th edition)” (Locarno classification), the patents applied by listed companies are summarized and classified by “department, major category, and minor category” to determine whether enterprises have ventured into new innovative directions. The study employs the Heckman two-step model to examine the policy’s effects.
The research findings indicate (1) the policy effectively encourages enterprises to explore new innovative directions and engage in high-quality innovation activities in these new areas; (2) the increase in cash flow support and net asset return brought about by this policy is a significant pathway for promoting enterprises to explore new directions; (3) the incentive effects of this policy on exploring innovative directions in strategic emerging industries are more pronounced. The study suggests further intensifying incentives, implementing policies to support “bottleneck technologies” and other strategically important technological fields, and increasing support for strategic emerging industries. Moreover, greater post-support should be provided to enterprises that achieve groundbreaking innovation breakthrough.
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Published: 04 December 2023
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