Growth, Upgrading and Limited Catch-up in China’s Semiconductor Industry
In Policy, Regulation, and Innovation in China’s Electricity and Telecom Industries, ed. Loren Brandt and Thomas G. Rawski. Cambridge: Cambridge University Press, 2019.
54 Pages Posted: 11 May 2020
Date Written: 2019
Semiconductors represent a major building block of high-tech industry. This chapter analyzes the trajectory of China’s rapidly growing semiconductor sector, focusing on the interplay among global technology developments, Chinese government policy, and three groups of firms: purely domestic manufacturers, Chinese operations of multi-national corporations, and hybrid firms based in China but with offshore ownership and financing.
China has pursued policies aiming to build a globally competitive domestic industry. Policy instruments include outlays on technical education, and more focused initiatives that channel investment funds, imported technology and product demand toward domestic firms, mostly state-owned ones. Despite strong government backing, domestic state-owned firms have generally failed to generate technological dynamism. Only the hybrids have delivered substantial technological advance.
Recent policy initiatives continue to lavish resources on state-owned firms while limiting the capacity of potentially more innovative hybrid and domestic private operators to expand and upgrade. As a result, China’s semiconductor industry appears locked into a path that combines quantitative expansion with low financial returns and limited qualitative improvement. This trajectory offers little prospect for attaining China’s long-term objective of propelling domestic semiconductor manufacture toward the global frontier of technology and innovation.
Keywords: semiconductor, integrated circuit (IC), industrial policy, China, state-owned enterprise (SOE), hybrid, technology, GVC, global value chain
JEL Classification: O25, O32, O38, O43, P2
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