From Catching Up to Forging Ahead: China's Policies for Semiconductors

Dieter Ernst
2015 Social Science Research Network  
China has reached a level of development where catching up through an investment-driven development model is no longer sufficient to create long-term economic growth and prosperity. The closer China has moved to the technology frontier, the less scope there is for imitation and low-level incremental innovation. Of critical importance now is that Chinese firms develop and protect their own intellectual property rights and accelerate the commercialization of new ideas, discoveries, and
more » ... ed industrial inventions. Since the Third Plenum, China's leadership has emphasized the need to upgrade the economy through productivity-enhancing industrial innovation. To make this happen, the government has embarked on major changes in China's innovation strategy and its science and technology system. Emblematic of the shift to an innovation-driven development model are new policy initiatives in China's semiconductor industry that seek to accelerate the transition from catching up with global industry leaders to forging ahead through innovation. The semiconductor industry is one of the priority targets of China's innovation policy. At the same time, China's semiconductor industry is deeply integrated into the global semiconductor industry through markets, investment, and technology. Thus, the industry provides an interesting test case for studying the strengths and weaknesses of China's push toward an innovation-driven development model. Drawing on interviews with China-based industry experts, this study takes a close look at objectives, strategy, and implementation policies of China's new push in semiconductors, and it examines what this implies for China's prospects in this industry. The following questions are addressed in particular: In light of the mixed results of earlier support policies in this industry, how realistic are the objectives, outlined in the new semiconductor strategy? Does the semiconductor strategy signal a resurgence of state-led mercantilist industrial policies? In other words, is the government just pouring old wine into new bottles? Or are there signs of real adjustments in strategy and policy implementation as the government seeks to exploit global transformations in markets and technology, and as it seeks to benefit from the rise of private firms in China's semiconductor industry? In addressing these questions, the study contributes to the literature three observations: First, top-down, stateled "old industrial policies" simply don't work in a knowledge-intensive and highly globalized industry like semiconductors, where basic parameters that determine how China will fare may change at short notice and in unpredictable ways. Rising complexity of technology, business organization, and competitive dynamics are the root causes for such uncertainty. If China wants to forge ahead in the semiconductor industry, it needs to move toward a bottom-up, market-led approach to industrial policy.
doi:10.2139/ssrn.2744974 fatcat:ogow6zzxqvb5lf5vil4mawiixe