Possibility of Leapfrogging by China in Semiconductor

Since the disruption of GVCs by Covid-19 and US-China tension, securing a supply of key intermediate goods has risen as one of the most vital matters in maintaining economic resiliency and controlling inflation around the world. Thus, developing semiconductors is the top priority of many countries, which ensures a stable supply of these key inputs to many products and telecommunication systems. Although the US claims the biggest portion of profits in the Semiconductor industry owing to its strength in chip designs or the fabless segment of the industry, there is growing concern about all the manufacturing facilities of chips being located far away or in East Asia. Further, the US would not want China to rise as the next location of chip manufacturing. The Chinese government set the semiconductor sector as the key target for indigenous innovation, given its heavy reliance on imports in this world’s biggest market for chips. Despite this all-out effort, the degree of catching-up by China has been limited so far, and the situation has become worse since the US-China tension. This paper first reviews China's past efforts to promote the development of the semiconductor industry and then seeks the reasons for the slow catch-up performance in terms of the regimes of technologies and markets. It looks at the Korean experience and deals with the question of whether China may be able to generate success similar to Korea's by trying a leapfrogging strategy.