Narrow Results

This study explores the nature and evolution of China’s developmental state through a detailed case study of the country’s semiconductor industrial policy. China, since the 1980s, can be described as an entrepreneurial developmental state due to its prioritizing of economic growth and use of direct investment in its industries. The country’s semiconductor industrial policy during the 1980s and 1990s fits neatly into this model due to the government’s focus on developing national champions. With the failure of these projects, however, the government was forced to adopt the policies of a general developmental state and use indirect incentives to promote the growth of its IC (integrated circuit) industry. Several hybrid and foreign firms began to develop as a result of these policies. The Chinese government launched a new industrial policy in 2014 to revitalize its IC industry, indicating a return to the entrepreneurial state model. China established National IC Funds which amassed huge sums of money from the state budget and state-owned enterprises (SOEs). Close scrutiny of the investments of these funds reveals that 54% was risked on two national champions while the rest was diversified among more than 300 firms when accounting for indirect investment through investment companies. This diversification is representative of the investor state model. The recent bankruptcy and ensuing scandals suggest that China’s entrepreneurial state suffers from serious deficiencies in its governance. This study concludes that the Chinese government should reconsider its development model and consider transforming itself into that of a more cautious investor state while improving its governance mechanisms.