Chinese manufacturers receive nine times more government support than their Western counterparts, according to Organization for Economic Co-operation and Development (OECD) calculations that help explain the country’s total dominance in so many sectors, from solar panels and batteries to the steel.
Figures prepared by the OECD show that the Chinese benefit companies with government subsidies equivalent, on average, to 3.7% of their income. This compares with average state aid of just 0.4% of income for rich world countries.
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The data is a key part of the explanation for Chinese dominance in certain fields, not to mention part of the explanation for why the UK has seen its manufacturing base shrink so rapidly in recent years.
While Porcelain provides large amounts of assistance to key sectors, including its photovoltaic solar sector and producers of base metals, such as aluminum and steel, UK governments have tended over decades to be considerably less interventionist. The result is that the UK has seen many plants close, unable to compete with cheap imports.
Until now there has been no definitive measure of the extent to which those cheap imports have been influenced by what economists call “state aid,” by which governments help their companies.
In part this is because measuring state aid is devilishly difficult.
In its simplest form, it can take the form of direct subsidies from governments, to support a company or help it build a plant. However, some countries are less transparent than others about these subsidies. But arguably more important are the low excise taxes sometimes charged to specific companies or sectors, and the lower-than-market interest rates sometimes offered to favored companies.
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The OECD analysis, which has not yet been published as a formal report for widespread dissemination, is the most comprehensive attempt yet to quantify these various types of state aid and compare different regions with each other.
Their conclusion that China provides significantly more state aid to its manufacturers is unlikely to be a surprise, but it does provide a statistical backbone 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 plants receiving the most aid. However, the report predates the rapid increase in Chinese battery production in recent years.
Low Joe BidenThe United States has introduced a series of measures, from the CHIPS Act to the Inflation Reduction Act, designed to provide subsidies to those who make semiconductors and green technology in the United States.
However, even after those interventions, total state aid in the United States is likely to remain lower than the Chinese total.