This paper examines innovations and R&D expenditures in Chinese biotechnology and pharmaceutical industries.We find that firms’ spending in R&D activities are much lower than other operating related activities,which suggests a suboptimal allocation of resources; the proportion of intangible assets to total assets including patents,trademarks and licenses are much lower than those in industrial countries such as Canada and the U.S.Further analysis examines what is associated with R&D spending.Using China Stock Market Financial Statement Database (CSMAR) and SINA financial database,it is shown that Chinese biotechnology and pharmaceutical firms’ expenditures in R&D activities are positively associated with ownership structure,but negatively associated with firm size,and investments in other assets including inventories and fix assets.