Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy

Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy

Usha C.V. Haley

Language: English

Pages: 272

ISBN: 0199773742

Format: PDF / Kindle (mobi) / ePub


How did China move so swiftly in capital-intensive industries without labor-cost or scale advantage from bit player to the largest manufacturer and exporter in the world? This book argues that subsidies contributed significantly to China's success. Industrial subsidies in key Chinese manufacturing industries may exceed thirty percent of industrial output. Economic theories have mostly portrayed subsidies as distortive, inefficiently reallocating resources according to non-market criteria. However, China's state-capitalist regime uses subsidies to promote the governments' and the Communist Party of China's interests. Rather than aberrations, subsidies help Chinese businesses and governments produce, stabilize and create common understandings of markets; the flows of capital reflect struggles between critical Chinese actors including central and provincial governments. Concepts of state capitalism including market-transition theory, the multi-organizational Chinese state, and state as paramount shareholder, create complex and relevant understandings of Chinese subsidies. The authors develop independent measures of industrial subsidies using publicly-reported data at firm and industry levels from governmental and private sources. Subsidies include free to low-cost loans, subsidies to energy (coal, electricity, natural gas, heavy oil) and to key inputs, land and technology. Four sequential studies identify the growth of subsidies to Chinese manufacturing over time and effects on world industry: steel (2000-2007), glass (2004-2008), paper (2002-2009) and auto parts (2001-2011). Subsidies to Chinese industry affect and are affected by business strategy and trade policy. Business strategies include lobbying for subsidies and for protection from subsidized foreign competitors and managing supply chains to guard against whiplash effects of uncoordinated subsidies. The subsidized solar industry highlights how global business strategies and decisions on production location and technology development respond to production or consumption subsidies and include market (competitive) and non-market (political) strategies. The book also covers government policies and regulation on subsidies broadly focusing on domestic consumption (antidumping and countervailing duties) and domestic production (indigenous innovation).

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SOEs to accomplish and thereby uses SOEs to further its industrial policies. Formed in 2003, SASAC manages the CPC’s efforts to control China’s SOEs while increasing the SOEs’ economic returns and maintaining the government’s political returns (G. T. Haley 2007). Through SASAC, the state’s economic and political goals become operational. A total of 141 SOEs under SASAC made net profits of $101.96 billion in 2008 with $613 billion in revenues in the first five months of 2009 (China Daily, June 29,

export subsidies and (2) local-content or import-substitution subsidies. Export subsidies are contingent, in law or in fact, whether solely or as one of several conditions, on export performance. Local-content subsidies are contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. In her testimony before the US-China Economic and Security Review Commission, Usha Haley (2006) identified industrial subsidies in China as deriving from

in 2010, versus RMB 400 billion in 2009. Consequently, real off-balance-sheet lending is probably much larger than the PBC’s estimates. Several researchers have found that central and local governments have directed banks to provide loans to SOEs to further the state’s goals. As the governments report most of these loans as unpayable, they burden the banking system (see Cull and Xu 2003); however, no public information exists on the magnitude of these loans. Eckhaus (2006) found that at least

develop independent measures of industrial subsidies using publicly reported data at company and industrial levels and from diverse sources. Generally, researchers have a notoriously hard time measuring subsidies, and Chinese subsidies even more so. As this book describes in several sections, for institutional and strategic reasons, the information on manufacturing subsidies that the Chinese government provides has rampant missing and misreported data; also, few consistent definitions exist for

of revenues. Collectives and SOEs appeared to have lower revenues than their competitors, with 4 percent and 7 percent respectively. Equity JVs and shareholding companies that had state ownership had 1 percent and 8 percent of revenues respectively. ANALYSIS OF GLASS SUPPLY This section looks at the growth of Chinese glass production and the building of excess capacity. It also traces the effects of Chinese glass production on Chinese exports and US imports. Production Capacity In

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