The Challenges of Chinese Industrial Policy

Lee Branstetter and Guangwei Li

Entrepreneurship and Innovation Policy and the Economy, 2024, vol. 3, issue 1, 77 - 113

Abstract: This essay presents a historical overview of the extensive evolution of Chinese industrial policy and summarizes the limited yet expanding body of literature on the effectiveness and impact of such policies. In addition, it provides concise descriptions of three industry case studies—shipbuilding, semiconductors, and electric vehicles—that highlight significant trends in recent Chinese industrial policy. The evidence regarding China’s success in this regard is a complex mixture. Our analysis in this essay suggests that as China’s economy continues to mature and the enduring benefits from earlier waves of economic liberalization and demographic dividends gradually diminish, industrial policy will become more challenging. The disparity between policy ambitions and capabilities is expected to widen, and conflicts arising from competing policy objectives are likely to intensify. Moreover, managing the opportunistic responses of regions, companies, and other actors involved in the industrial-policy arena is likely to become increasingly arduous. Finally, the opportunity cost of policy mistakes is poised to grow.

Date: 2024
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