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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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

way different from other merchandises. Automobile export adds to the dignity of a nation. … The auto industry represents a country’s overall economic strength. The government should provide vigorous support” (China Automotive Review 2006). Governmental policy has aimed at increasing domestic auto and auto-parts manufacturing with foreign partners, enabling technology transfer and creating an auto-parts supply base for exports.15 The government has offered market access to foreign auto companies

exports. Much of China’s economic prowess has manifested in the space of a decade, with many Chinese products selling for about 30–50 percent less than comparable products from industrialized nations. Economic theories of cost advantages from efficiencies and technological breakthroughs fail to explain fully these cost advantages: As the industry studies in this book indicate, Chinese industries remain highly fragmented, with most companies having no economies of scale or scope and using

International Trade Commission, Industry Seminar Series, Washington, DC, December 5. Haley, G. T., and U. C. V. Haley. 2012a. Bringing solar manufacturing back. The Hill’s Congress Blog, February 7. Available at http://thehill.com/blogs/congress-blog/energy-a-environment/209239-bringing-solar-manufacturing-back. Haley, G. T., U. C. V. Haley, and C. T. Tan. 2004. The Chinese Tao of Business: The Logic of Successful Business Strategy. Singapore: John Wiley & Sons. Haley, G. T., U. C. V. Haley,

fragmentation, xxii, 128 geographic spread and clustering, 130–132 government policy, role in auto parts industry, 139–144, 151, 193 government policy and value chain upgrades, 126 growth of China’s auto-parts industry, xxii, 124–125 impending overcapacity, 132–133 imports and exports, 134–137, 193 industrial parks, 133 industry characteristics, 124–133 joint ventures, 123, 129, 134, 140–141, 143, 151 labor costs, 138 local content, 126, 150–152 national champions, 140 new energy

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