The rise of China in the world economy has exerted substantial competitive pressures on workers and firms whose occupations and products can be easily substituted by imports from China. Substantial evidence suggests that competing with China is a culprit driving the wage gap between high and lower skilled workers, leading to skill-biased technological upgrading. This paper undertakes a more direct investigation of the above thesis by examining the innovation responses of a panel of Japanese firms to Chinese import competition for the period 1994-2009. We build a comprehensive firm-level dataset with patenting and R&D expenditure rather than relying on a single metric of innovation activities. These are complemented by an index measuring firms’ exposure to Chinese competition. It is found that Japanese firms have responded by increasing their R&D and patenting activities when more exposed to Chinese import competition. However, this effect is only observed for firms which engage in importing and exporting.