Against the backdrop of rising global protectionism and increasingly stringent export controls on critical technologies, downstream firms in China face heightened risks of disruptions in the supply of key intermediate inputs and breakdowns in production chains. To enhance the resilience and security of industrial and supply chains, the Chinese government has continuously promoted the domestic substitution of critical core technologies and key inputs. These policies encourage downstream firms to redirect part of their procurement demand toward domestic upstream suppliers, thereby generating demand-side incentives for upstream technological upgrading.

Using data from the FactSet Revere global supply chain database, China Customs import records, and IncoPat patent data, this paper constructs a panel dataset of downstream customer–upstream supplier–year to investigate the impact of downstream customers’ global supply chain risks on innovation by upstream suppliers. The results show that global supply chain risks significantly promote innovation by upstream suppliers. Mechanism testing indicates that this effect operates primarily through expanded domestic market demand, enhanced customer–supplier collaborative innovation, and government support. The effect is stronger for foreign-invested firms, general-trade firms, high-tech firms, and firms occupying relatively advanced positions in global value chains. Further analysis shows that the innovation response does not significantly affect downstream customers themselves, but diffuses along the supply chain to second- and third-tier suppliers, generating multi-tier innovation spillovers.

This paper makes the following contributions: First, drawing on micro-level matched data, it develops measurements of innovation by upstream suppliers and downstream customers’ exposure to global supply chain risks. Second, it incorporates global supply chain risks into the analysis of innovation by upstream suppliers, demonstrating how external supply shocks are transmitted through demand-side channels within domestic production networks and subsequently shape upstream innovation. Third, it empirically examines the roles of domestic market demand, collaborative innovation, and government support, while further exploring the effects of the dynamic allocation of R&D personnel and the strength of overseas intellectual property protection. This paper provides policy implications for stimulating upstream innovation and promoting high-quality development through demand inducement, supply-chain collaboration, and talent allocation in an increasingly complex external environment.