Chinese manufacturers receive nine times more government support than their Western counterparts, according to calculations by the Organization for Economic Co-operation and Development (OECD), which help explain the country’s total dominance in so many sectors, from solar panels to batteries. down to steel.
Figures presented by the OECD show that Chinese companies benefit from government subsidies equivalent, on average, to 3.7% of their revenue. This compares with average state aid of just 0.4% of income in rich world countries.
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The data is a critical part of the explanation for Chinese dominance in certain domains, not to mention part of the explanation for why the UK has seen its industrial base shrink so rapidly in recent years.
While China provides large amounts of assistance to key sectors, including your photovoltaic solar sector and producers of base metals aluminum and steel, UK governments have tended for decades to be considerably less interventionist. The result is that the UK has seen many factories close, unable to compete with cheap imports.
Until now there has been no definitive measure of the extent to which these cheap imports have been influenced by what economists call “state aid” – through which governments help their companies.
In part, this is because measuring state aid is terribly difficult.
In its simplest form, it can take the form of direct grants from governments to support a company or help it build a factory. However, some countries are less transparent than others regarding these subsidies. But perhaps more important are low special taxes, sometimes levied on specific companies or sectors, and lower-than-market interest rates, which are sometimes offered to favored companies.
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The OECD analysis, which has not yet been published as a formal report for widespread release, is the most comprehensive attempt yet to quantify these various types of state aid and compare different regions to each other.
Their conclusion, that China provides significantly more state aid to its manufacturers, should not come as a surprise – but it provides a statistical basis for arguments that the global trading system does too little to address these interventions.
It also finds that the amount of state aid varies significantly from sector to sector, with aluminum smelters, cement manufacturers and solar cell factories receiving the most assistance. However, the report predates the rapid increase in Chinese battery production in recent years.
Under Joe BidenThe US has introduced a series of measures, from the CHIPS Act to the Inflation Reduction Act, designed to provide subsidies for those manufacturing semiconductors and green technology in the US.
However, even after these interventions, total state aid in the US will still likely be less than the Chinese total.
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