After joining the World Trade Organization (WTO), China witnessed a major inflow of Foreign Direct Investment (FDI). Many famous automobile firms of developed
countries were attracted to invest in China to cooperate with domestic firms. This paper uses firm-level data of the Chinese automobile industry to analyze the
determinants of, and the interrelationships between, innovation input and innovation output, and in particular whether FDI had any influence on these two aspects of
innovation. A generalized tobit model will be estimated for both R&D and the share of innovative sales for 2002/2003 and 2005/2006. The findings show that FDI firms
are less R&D intensive but, when they innovate in new products, they are more product innovative than domestic-funded firms.