Since its reform and opening, China has achieved a rapid economic growth through the last three decades. The economic growth of China is based on technological catch-up in individual industries. Therefore, many studies have examined economic developme...
Since its reform and opening, China has achieved a rapid economic growth through the last three decades. The economic growth of China is based on technological catch-up in individual industries. Therefore, many studies have examined economic development on the industrial level (Lee, Cho and Jin 2009; Li and Pu 2009; Zhu et al. 2005; Mu and Lee 2005). In semiconductor industry, however, Chinese firms as late-comers are suffering difficulties in catch up. Although China had made efforts to establish an innovative system, placing priority on semiconductor industry since the establishment of the government, it could not secure world class semiconductor wafer processing technology (Pwc, 2013). With this background, this study explores the reason why semiconductor industry in China had to suffer limitations in industrial catch up focusing on the absence of external knowledge network, and describes past efforts of Chinese government to overcome those difficulties. China could not access external knowledge because of restrictions on technology transfer by western countries including Wassenaar Arrangement and Prohibition of State-of-the-art Technology Transfer of Taiwan. Additionally, as competition in industry becomes fiercer, security on wafer processing technology becomes enforced. As the access to external knowledge network was limited, companies and research institutes that could compete with world-class firms could not grow in China. Consequently, the development of internal innovation network between innovative players was delayed also. This case of semiconductor industry in China may present many implications to industrial catch up of developing countries with lack of external knowledge network.