The Times reports of the latest example of industrial policy from China, promotion of semiconductor chip making industry. It writes,
The MGI report, which formed the basis of the Times article, writes about the evolution of the government's semiconductor design and manufacturing policy,
1. As the example shows, Chinese industrial policy, despite its apparent simplicity is characterized by very smart iterative learning by doing. Each industrial policy intervention has undergone constant revisions based on feedback before they succeeded. All along the primary objective was to develop globally competitive industries. It requires enormous political courage and commitment as well as bureaucratic discipline and competence to acknowledge mistakes, learn from it, and refine policies while not losing sight of the ultimate objective.
2. The magnitude of the resources committed is massive. No country, including in the developed world, can commit such scale of resources to pursue its industrial policy objectives. Even for large countries like India, the resources committed by China for semiconductor industry alone will dwarf their total industrial policy commitment over a longer period. Such scale of support, coupled with strong and disciplined leadership, have generally underpinned Chinese industrial policy interventions.
Last year, the country imported $232 billion of semiconductor products, eclipsing even the amount spent on petroleum. To narrow the gap, Beijing is starting programs to increase investment by the state and to gain expertise from foreign chip companies. Experts say the chip industry is one focus of Chinese espionage efforts... Vice Premier Ma Kai is leading a task force charged with making the country’s chip industry a world leader by 2030. The task force brings together four ministries and is estimated to have $170 billion in government support to spend over five to 10 years.The rising trend of anti-trust and other investigations against multinationals launched by the Chinese government is being alleged to be part of a strategy that also includes forcing technology firms to lower licensing standards or agree for more liberal technology sharing contracts.
The MGI report, which formed the basis of the Times article, writes about the evolution of the government's semiconductor design and manufacturing policy,
Semiconductors are only the latest in the long line of industrial policy interventions pursued by the Chinese government. Two things stand outThe Chinese government is now putting significant funding and effort behind new policies relating to the development of the semiconductor industry. The government’s previous attempts to build the industry, dating all the way back to the 1990s, had mixed results because funding plans and incentives were focused more on research and academia than on business. Additionally, investments were fragmented—at one point, the government had invested in 130 fabrication sites across more than 15 provinces, none of which was able to capitalize on the scale and scope of its neighbors’ sites, and supporting industries never materialized.The government, realizing that earlier bureaucrat-led investment initiatives failed to bring the desired results, is now aiming to take a market-based investment approach. In this case, decisions about allocating for-profit investment funds will be managed by professionals but will remain aligned with the government’s policy objectives. Chinese officials have convened a unique task force charged with setting an aggressive growth strategy... Investments will be made by a national investment vehicle (the National Industry Investment Fund) and provincial-level entities. These entities will invest across multiple categories, including project finance and domestic and foreign acquisitions, as well as traditional research and development subsidies and tax credits.To avoid the fragmentation issues of the past, the government will focus on creating national champions—a small set of leaders in each critical segment of the semiconductor market (including design, manufacturing, tools, and assembly and test) and a few provinces in which there is the potential to develop industry clusters... The Chinese government has actively pursued consolidation to spur the creation of national champions... The new policy framework specifically encourages consolidation within China’s assembly-and-test market segment.
1. As the example shows, Chinese industrial policy, despite its apparent simplicity is characterized by very smart iterative learning by doing. Each industrial policy intervention has undergone constant revisions based on feedback before they succeeded. All along the primary objective was to develop globally competitive industries. It requires enormous political courage and commitment as well as bureaucratic discipline and competence to acknowledge mistakes, learn from it, and refine policies while not losing sight of the ultimate objective.
2. The magnitude of the resources committed is massive. No country, including in the developed world, can commit such scale of resources to pursue its industrial policy objectives. Even for large countries like India, the resources committed by China for semiconductor industry alone will dwarf their total industrial policy commitment over a longer period. Such scale of support, coupled with strong and disciplined leadership, have generally underpinned Chinese industrial policy interventions.
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