Catching-up in the semiconductor industry: comparing the Chinese and Malaysian experience

ABSTRACT This paper compares the paths of development taken by China and Malaysia in their attempts to pursue catching-up. While both China and Malaysia rely to a large extent on attracting foreign direct investment, China has, since its economic liberalisation in the late 1970s, implemented a more proactive set of industrial policy to embed foreign know-how and promote domestic technological deepening. This is illustrated through a comparison of the evolution of the Chinese and Malaysian semiconductor (upstream) industry. Although their progress remains tentative at this stage, China seems to be showing more concrete signs of technological and industrial sophistication than Malaysia. Such mastery is a useful platform for Chinese firms to progressively climb the technological ladder and to capture more value from the production and sales of increasingly complex goods and services. The principles discussed in this paper provide policy lessons, or at least some initial guidance, for other developing economies aspiring to move up the value chain.