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1. Foul Play? On the Scale and Scope of Industrial Subsidies in China

Author:
Frank Bickenbach, Dirk Dohse, Rolf Langhammer, and Wan-Hsin Liu
Publication Date:
04-2024
Content Type:
Policy Brief
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
China makes extensive use of subsidies in order to take a leading role on the global markets in the green technology sectors of electric vehicles, wind turbines and railway rolling stock. According to DiPippo et al. (2022) and recent OECD studies, the industrial subsidies in China are at least three to four times or even up to nine times higher than in the major EU and OECD countries. According to a very conservative estimate, industrial subsidies in China amounted to around EUR 221 billion or 1.73% of Chinese GDP in 2019. According to recent data of 2022, direct government subsidies for some of the dominant Chinese manufacturers of green technology products had also increased significantly - the electric car manufacturer BYD alone received EUR 2.1 billion. The authors point out that Chinese companies are benefiting from further support measures, including subsidized inputs, preferential access to critical raw materials, forced technology transfers, the strategic use of public procurement and the preferential treatment of domestic firms in administrative procedures. The authors recommend the EU to use its anti-subsidy proceeding against BEV imports from China to enter into negotiations with the Chinese government and persuade it to abolish public support measures that are particularly harmful to the EU.
Topic:
Globalization, International Trade and Finance, Foreign Direct Investment, European Union, Business, Renewable Energy, Industry, Subsidies, and Electric Vehicles
Political Geography:
China and Europe

2. Who wins and who loses from state subsidies?

Author:
Sourafel Girma, Holger Görg, and Ignat Stepanok
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
China is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non-subsidized firms. We find that firms that receive subsidies experience a boost for productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non-subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in the light of a simple heterogenous firm type model, which highlights that subsidization, in a competitive environment of firms, may potentially harm non-subsidized firms.
Topic:
Governance, Business, Subsidies, and Competition
Political Geography:
China and Asia

3. Subsidising Balkanisation: What China’s 3G Subsidies Teach us about 5G Open RAN

Author:
Hosuk Lee-Makiyama
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Open RAN is increasingly becoming the answer to how to diversify 5G networks and beyond, especially in the light of a potential exclusion of China’s participation in western networks. In recent times, the US and Japan have jointly pledged $4.5 billion to support its development. Much – or perhaps entirety – of this support is predesignated for the O-RAN Alliance, a closed-door and private industry consortium. State interventionism is back – in a sector hereto characterised by open western markets and free competition. The public support currently pledged to the O-RAN consortium bear many resemblances to the Chinese government’s attempt to support TD-SCDMA, a unique standard for the Chinese market that was designed to support local vendors. Its use was a pre-condition for public subsidies for R&D or public procurement. As recent as 2020, the US Trade Representative reported on China’s standard-setting practices and subsidies as one of the world’s worst trade barriers. Those who advocate similar support in the West are either indifferent or nescient about how EU and US trade negotiators worked to address subsidies and opaque standard-setting. It is an open question whether the US and Japan will offer a level-playing field to European vendors – or non-O-RAN members who may develop their own Open RAN variants. Nowadays, Chinese scholars and senior officials openly talk of “TD-style innovation” as a disaster for the nation that delayed China’s rollout of 4G and plunged the economy into a performance and innovation lag. A key lesson for policymakers today is how vendors that cannot survive without subsidies will not optimise the organisation for innovation but public grant-seeking. This is an eerie warning for the 5G debate in some western capitals.
Topic:
Science and Technology, Digital Economy, 5G, and Subsidies
Political Geography:
China and Asia