China's Indigenous Innovation Policy and the Semiconductor Industry

China’s semiconductor industry poses an interesting advanced manufacturing puzzle: Why is it that, despite massive government efforts to build indigenous innovation and production capabilities, Chinese firms still play a very limited role in semiconductor production, integrated circuit design, and innovation?

Dieter Ernst will discuss how China’s indigenous innovation semiconductor policy fails to take into account the importance of industry structure for firm-level innovation capacity. Due to its deep integration into the global semiconductor value chain, China’s semiconductor industry (or at least a part of it) follows a trajectory that seems to be quite different from the government-sponsored strategy of “indigenous innovation” and its focus on the development of “Strategic Emerging Industries”. These two faces of “innovative China” coexist, but so far with little interaction. This raises an important question for China’s innovation strategy: Is China adequately accounting for the unintended costs of “indigenous innovation”, and how can China combine the benefits of both innovation strategies?