China Hit Some Bumps on Its Road to Semiconductor Dominance

David Feith and Rick Switzer

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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.

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.