To promote technological progress, China has long emphasized attracting foreign direct investment (FDI). However, the role of traditional FDI has been increasingly diminishing. First, low-quality FDI relies on outdated development models, thereby locking China into the lower end of the global value chain. Second, traditional foreign-invested enterprises intensify product market competition, which may suppress innovation by domestic firms in China through the Schumpeterian effect. Third, as China’s technological gap with the global frontier continues to narrow, the marginal spillover effect of advanced foreign technologies brought by FDI has weakened. Therefore, China needs to attract new high-quality FDI.

As a kind of new high-quality FDI, R&D center foreign firms (RDFFs) exert stronger positive technological spillovers and a weaker negative market competition effect on domestic firms. This paper identifies RDFFs from the business registration database of Qichacha. Based on the city-industry-year panel data from 2004 to 2020 and a DID model, it is found that the scale of incumbent foreign-invested enterprises has little impact on innovation, whereas the entry of RDFFs has a significant positive effect on innovation. RDFFs can facilitate the development of key industries underpinning new quality productive forces: Their innovation-enhancing effect is particularly pronounced in high-tech industries and strategic emerging industries. Moreover, technological spillovers from RDFFs are stronger in cities with a larger domestic market size, better regional market institutions, and more developed legal environments. Mechanism testing reveals that technological spillovers are amplified when industry similarity and spatial proximity are higher.

This paper makes the following contributions: First, it proposes and demonstrates that by attracting new high-quality FDI represented by RDFFs, we can promote the upgrading of FDI from “Made in China” to “Created in China”, thereby helping China enhance its independent innovation capabilities and cultivate new quality productive forces. Second, it suggests that relevant scholars can seek special foreign investment to accurately estimate the technological spillover effect of foreign investment. Third, the findings are beneficial for all social sectors to better recognize the importance of attracting new high-quality FDI and upgrading existing FDI, and for the government to formulate well-targeted policies related to FDI promotion and innovation-driven development.