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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GEORGE T. HALEY George Haley is Professor of Marketing at the University of New Haven (UNH), where he teaches in graduate and executive programs; in summer, he serves as Distinguished Guest Professor of Marketing at the School of Business, ITESM in Mexico. He is founding Director of the Center for International Industry Competitiveness, a Center of Excellence at UNH. He has conducted policy-analysis seminars on China / emerging markets for the National Intelligence Council / CIA, and the

Green Energy Holdings (loan $8.3 billion), JA Solar Holdings (loan $4.4 billion), and Trina Solar (loan $4.4 billion). 3. In economics, comparative advantage results from differing endowments of the factors of production (capital, land, labor) entrepreneurial skills, power, technology, etc. The concept owes its origins to David Ricardo (1772–1823) and his work on comparative costs. For trade, comparative advantage implies that a country should specialize in producing and exporting only those

energy subsidies arise as the government artificially holds the price below the full economic costs of usage or production. Yet researchers have had great difficulty accessing public information to ascertain the existence of energy subsidies. The International Energy Agency’s (1999, chap. 5) sole comprehensive study on China’s energy subsidies indicated an average subsidy rate of 10.9 percent in 1998, with social-welfare losses equivalent to 0.36 percent of GDP. Lin and Jiang (2010) also examined

2008, China’s glass industry contributed over 31 percent of global glass production. The country had the greatest number of float-glass production lines and the largest production capacity for float glass in the world. Figure 4.2 outlines the total number of float-glass production lines and production capacity in China from 2000 to 2007. Production capacity of glass in China had more than doubled since 2003 and increased threefold since 2000. China produced 497 million weight boxes of flat glass

exporters in the world. How did subsidies aid China in becoming so apparently competitive in capital-intensive products for which it enjoyed no comparative advantage3 a decade prior? What are the implications for firms and other countries in the face of this hidden advantage? Table 1.1 indicates the growth of three measurable subsidies to Chinese private firms and SOEs in the form of research-and-development (R&D) funds, subsidies to loss-making SOEs, and additional appropriations for SOEs’

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