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Data shows Chinese state aid hampers Western business competition

  • OECD study shows China provides nine times more state aid
  • China’s subsidies contribute to dominance in key industries
  • UK’s manufacturing decline contrasts with China’s interventionist policies

As of now, the analysis conducted by the OECD Club of Nations represents the most exhaustive endeavour to quantify the various forms of state aid and to compare regions. 

In comparison to their Western counterparts, Chinese manufacturers receive nine times more government support, according to calculations by the Organisation for Economic Co-operation and Development (OECD). These figures help to explain China’s overwhelming dominance in so many industries, including steel, solar panels, and batteries. 

According to data compiled by the OECD, Chinese enterprises receive government subsidies amounting to 3.7% of their revenues on average. This is in stark contrast to the mean state aid of 0.4% of revenues that is allocated by affluent nations. 

The data are an essential component in elucidating the reasons behind Chinese supremacy in specific domains, as well as contributing to the comprehension of the swift contraction of the United Kingdom’s manufacturing sector in recent times. 

In contrast to China, which lavishes substantial aid on critical industries such as solar photovoltaics and base metals producers of aluminium and steel, British governments have exhibited a markedly less interventionist posture for decades. As a result, numerous facilities have closed in the United Kingdom, unable to compete with inexpensive imports. 

To date, there has been an absence of conclusive data regarding the extent to which subsidies provided by governments to their industries have influenced these inexpensive imports. This has been referred to as “state aid” by economists. 

This is due in part to the fact that quantifying state aid is beyond the pale. 

It can, in its most basic form, take the form of direct government grants that assist a business in constructing a facility or provide support. Nonetheless, certain nations exhibit varying degrees of opaqueness about these grants. However, arguably more significant are the special low taxes and below-market interest rates that are occasionally extended to favoured businesses or industries.

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The OECD analysis, which is not yet available for widespread publication as a formal report, represents the most exhaustive endeavour to date in quantifying the diverse forms of state aid and contrasting regions. 

It is not unexpected that China offers considerably greater state assistance to its manufacturers; nevertheless, this finding lends statistical support to the claim that the international trading system fails to adequately address such interventions. 

Additionally, the report reveals that the magnitude of state aid exhibits substantial variation across different sectors, with solar cell facilities, cement manufacturers, and aluminium smelters being the most recipients. Nevertheless, the report was written before the exponential growth of battery manufacturing in China over the past few years. 

During Joe Biden’s administration, the United States has enacted a variety of measures, including the CHIPS Act and the Inflation Reduction Act, to subsidize domestic manufacturers of semiconductors and renewable technology

Despite these interventions, however, total state aid in the United States is likely to remain below that of China. 

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