How to improve China's industrial R&D investment

Forming research joint ventures (RJV) and R&D subsidies are two policies to improve the incentives of R&D investment. Vertical RJV is the dominant type of linkage in an industry. Based on the modified model of Banerjee and Lin (2001), this paper considers the factor of costs of R&D re-examines the incentives of forming vertical RJV in an industry according to China's industrial situation, and finds that the relationship between the profits of upstream (or downstream) firms and the number of member downstream firms is uncertain in China. According to the studying results of Cassiman Brano (2000), this paper suggests that China's government should give R&D subsidies to the fundamental research of an industry.