Success amid Failure: External Shocks and China’s Industrial Policies

• In Event: Great Powers and Tech Industries in a Globalized World

Abstract

This paper addresses the debate surrounding the efficacy of China’s industrial policies, looking at the relationship between external market shocks and technological catch-up. The debate on China’s industrial policy is broadly split between those that suggest China’s endeavors amount to a misallocation of resources and a transfer of wealth from the private sector to the government and those that consider the Chinese government policy as an important platform for Chinese industrialization in a globalized world with rising barriers to entry in a range of industries necessary for economic development. This paper takes a different view. We suggest that industrial policy exhibits characteristics highlighted by both sides of the debate. With these contradictory tendencies at play, how do we discern cases of success from those of failure. We look at three prominent cases of industrial policy: electric vehicles, railways, and semiconductors. Each case exhibits a distinct balance of private and state actors. The former two exhibit what could be considered successful industrial policy, while the latter remains unknown and hotly debated. We argue that under contemporary conditions of global standards, tightening intellectual property rights and growing barriers to entry industry policy is made or broken by its agents’ response to exogenous shocks, defined as a sharp fluctuation in external supply or demand for the industry’s core products or services.

Authors

• Anton Malkin, Chinese University of Hong Kong, Shenzhen

• Karl Yan, Chinese University of Hong Kong, Shenzhen