Ownership and Innovation in Chinese solar photovoltaic firms: an analysis of the effects of state, private, and foreign shareholding on patenting performance

Abstract

This thesis is a quantitative study of the effect of ownership – by state, private and foreign shareholdings – on innovation by China’s solar photovoltaic (PV) firms. Using the country’s solar PV industry, I seek to explain the impact of proportions of these different types of shareholding (and within the state category shareholding by central, provincial, and municipal governments) on innovative capacity. This capacity is measured by firms’ rates and qualities of patenting. As Chinese economic growth falters, amid the “re-shoring” of certain manufacturing capabilities, the role of the state, and whether it is helping or hindering its economy’s – and Chinese firms’ – technological upgrading, is a vital question. This is particularly true in high-tech sectors, including solar PV, which the Chinese government deems essential for the country’s continuing economic growth. Through the solar PV industry, we investigate the role of the state, and how it is helping or hindering Chinese companies’ innovation. We employ a dataset covering 150 solar photovoltaic firms. This combines current and historical shareholding data for each firm, R&D expenditure data, and the firms’ patent output (all Chinese-registered patents and their related foreign registrations). The thesis employs a principal-agent theoretical template for the unique Chinese politico-economic context, developing this theoretical approach for the particular “multi-principal” scenario in Chinese high-tech firms (here we refer not only to the combinations of private and state principals, but also to the impact of local against central government). We demonstrate that higher state shareholding leads to higher R&D spending relative to the size of solar PV firms; among state shareholding, local state ownership is shown to be better than central state ownership at generating innovation (which we measure as patent performance). Firms that combine private and state shareholding, especially minority state-owned firms, are superior innovators than purely private or purely state-owned firms. For particularly innovative patenting, foreign shareholding was found to be beneficial, and finally, central state ownership was more likely to lead to the generation of the less challenging types of solar PV technologies, whereas local state ownership was more likely to lead to “core” PV technologies being patented.