Sectoral Divergence of Industrial Catch‐Up in China's Loosely Coupled System: A Comparative Study of FPD and IC Manufacturing Industries*

Abstract

The flat panel display (FPD) and integrated circuit (IC) manufacturing industries have similar intrinsic characteristics in terms of their technology. The Chinese central government also makes significant efforts to nurture them both as core industries of the electronics sector. However, the level of industrial catch‐up in the two sectors across recent years has varied greatly. What drives the divergent patterns of industrial catch‐up in FPD and IC manufacturing in China? This paper analyzes the divergent patterns of industrial catch‐up in FPD and IC manufacturing by examining the configurational effects of three main components: the central state's promotion of industry, technology regimes and market conditions, and corporate governance. The different sets of configurations explain why innovation occurs in some industries and not in others within China's loosely coupled system. This study argues that different arrangements in industrial policy, combined with technical regimes, market conditions, and corporate governance triggered a virtuous cycle in which organizational capabilities are strengthened in FPD industry, while the reverse occurs in the IC manufacturing industry. Incorporating configurational effects enriches the evolutionary perspective on catch‐up and allows for a comparison between the catch‐up conditions across multiple levels.