This paper investigates the impact of returnee entrepreneurs and their knowledge spillovers on <br/>innovation in high-tech firms in China. Using panel data for 1,318 high-tech firms in Beijing Zhongguancun Science Park (ZSP) we find that returnee entrepreneurs create a significant spillover effect that promotes innovation in other local high-tech firms. The extent of this <br/>spillover effect is positively moderated by the non-returnee firm's absorptive capacity approximated by the skill level of employees. Multinational enterprises' R&D activities positively affect the innovation intensity of non-returnee firms only when these local firms <br/>possess the sufficient level of absorptive capacity. Our findings have important policy and managerial implications for policy-makers and practitioners.