Don’t be lulled into thinking China is failing in its goal to become the world’s biggest semiconductor-chip producer. That’s the conclusion some are drawing from such troubles as the bankruptcy of national champion Tsinghua Unigroup and the high-profile arrests of several officials and executives. If China is failing, the argument goes, why is Washington launching an expensive industrial policy to subsidize domestic semiconductor manufacturing?
This analysis is emblematic of the Western habit to underestimate the strength and resilience of China’s economy, political system and industrial strategies. China’s statist approach suffers from endemic waste, misallocation of capital and corruption. China isn’t guaranteed to succeed simply because Beijing wants to. But the notion that these arrests and bankruptcy signal China’s failure lacks evidence.
Consider the solar and shipbuilding industries. Similar to semiconductors, solar technology was invented and first commercialized in the U.S., only to be targeted later by China’s state planners. In 2012, after years of massive subsidies and overinvestment, China’s largest solar firms began to suffer high-profile setbacks. Trina and others cut production to maintain profitability. LDK Solar and others were bailed out by local governments while defaulting on foreign bonds. Suntech, the Nasdaq-listed darling of China’s solar sector, went bankrupt in 2013.
Fast-forward to the present, however, and China’s solar industry is so dominant that U.S. and European green-energy goals depend on Chinese exports. China accounts for 80% of global solar production (across all segments of the supply chain) and nearly 95% of polysilicon crystal. To make matters worse, China’s solar sector exploits forced labor from Uyghur Muslims in Xinjiang and beyond, so importing more Chinese solar panels often means abetting slavery.
In shipbuilding, too, Beijing’s interests have been well-served by subsidies, market-bending policies, and a willingness to endure economic losses. In 2002 Premier
Zhu Rongji
gave a speech calling for China to be the world’s leading shipbuilder, and Beijing made 2015 the target year to achieve this goal. At the time, China accounted for only 5% of global shipbuilding output. In 2003 a national shipbuilding plan emerged, followed by massive subsidies and other accommodative industrial…
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