China’s industrial policy for high-technology industries combines key features of the policies adopted elsewhere in East Asia: judicious opening to foreign investors and support for local firms.
However, unlike the developing economies of East Asia, China is a transition economy that already had a relatively well-developed, if somewhat dated, technology base of its own before its opening to outside investors at the end of the 1970s. Although the initial technology level of individual firms was low, a network of universities and government research institutes provided a strong foundation for future developments.
Like the other high-growth economies of East Asia, China has attracted foreign investment to rapidly expand its industries. But China has been able to leverage the enormous attractiveness of its domestic market to obtain technology transfers from its foreign investors on a scale that was unattainable in the regions other countries. Today, revamped state-owned firms and a host of newly-minted private ones are steadily building local competitive advantage.
China’s effort to move beyond dependence on foreign know-how to develop its own intellectual property (IP) in the electronics industry has been moving forward on several fronts, including optical storage, digital television, semiconductor design, and cellular telephony. The indigenous development of IP is a point of national pride, secures China a measure of technological independence and may serve a role in reducing burdensome royalty payments by local producers of high-tech goods.
This paper analyzes the experience of this Chinese high-technology policy in the optical storage industry. It begins with a brief overview of industrial policy for the electronics sector in East Asia, then discusses the relevant policies for two successive generations of optical storage: Video CD and DVD. Examples of similar policies in other industries are given, and a final section recaps and analyzes the optical storage case.
The research for this paper was conducted over a period of years using publicly available sources on the Internet and various news databases as part of the author’s ongoing research on the evolution of the electronics industry in East Asia.