Subsidies to Chinese Industry

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).
"Subsidies to Chinese Industry is a treasure trove of data on Chinese subsidization of four key sectors--steel, glass, paper, and auto parts. It is must reading for anyone seeking to understand China's low-cost advantage and, crucially, whether this advantage is likely to remain."--Marshall W. Meyer, Tsai Wan-Tsai Professor, The Wharton School, University of Pennsylvania

"This richly researched book provides a much-needed foundation for grasping the serious and growing threat posed by China's massive subsidization of its export-intensive strategic industries, which is harming industrial growth in the West. Upending conventional wisdom, the book shows that China's success does not stem from cost advantages as much as from subsidies calibrated for world-market dominance. Cutting-edge manufacturers and workers in the United States and Europe are paying a heavy toll. In light of the massive scale of subsidies supporting Chinese export manufacturers, China's growing reliance on state-owned enterprises, its disregard for intellectual property protections and its lack of transparency, Usha and George Haley have provided important recommendations to ensure fair and robust competition across the oceans as well as a bright economic future for our peoples."--Gordon Brinser, President, SolarWorld Industries America Inc., Hillsboro, Oregon

"A definitive and fascinating study of China's explosion onto the global markets for manufactured goods on the back of a single resource and the unintended consequences in capital allocation that will take years to return to alignment with basic principles of comparative advantage. The role of China's curious blend of market-driven economics and direct state involvement is creatively dissected here to provide valuable insights into what comes next."--Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics, Stern School of Business, New York University

"A provocative new book* by Usha and GeorgeCONTENTS ; PREFACE: CONTRIBUTIONS, CHAPTER OUTLINES, ACKNOWLEDGEMENTS ; CHAPTER 1. THE HIDDEN ADVANTAGE OF CHINESE SUBSIDIES ; CHAPTER 2. MEASURING SUBSIDIES TO CHINESE INDUSTRY ; CHAPTER 3. STEELY COMMITMENT: SUBSIDIES TO CHINA'S STEEL INDUSTRY ; CHAPTER 4. THROUGH THE LOOKING GLASS: SUBSIDIES TO CHINA'S GLASS INDUSTRY ; CHAPTER 5. NO PAPER TIGER: SUBSIDIES TO CHINA'S PAPER INDUSTRY ; CHAPTER 6. PEDAL TO THE METAL: SUBSIDIES TO CHINA'S AUTO-PARTS INDUSTRY ; CHAPTER 7. SUBSIDIES, BUSINESS STRATEGY AND TRADE POLICY ; BIBLIOGRAPHY ; APPENDIX FOUR LETTERS: 3 FROM US CONGRESS AND ONE FROM THE US WHITE HOUSE.