The Hidden Advantage of Chinese Subsidies
The Hidden Advantage of Chinese Subsidies
How did subsidies aid China in becoming so competitive in capital-intensive products for which it enjoyed no comparative advantage? Economic rationales cover subsidies for industrial development, technology development and strategic trade goals. The theories portray subsidies as distortive, redistributing and reallocating resources according to non-market criteria and resulting in economically inefficient resource allocations. Yet, rather than aberrations, in China, subsidies form important ways in which businesses, central and provincial governments produce, stabilize and create common understanding of markets. Flows of capital serve as mechanisms for Chinese state control of markets, but few industry studies exist of how they operate. The opacity and complexity of Chinese government borrowing also hinders accurate assessments. Concepts of state capitalism including market-transition theory, the multi-organizational Chinese state, and state as paramount shareholder form a prism for more complex and relevant understandings of Chinese subsidies.
Keywords: theories of subsidies, economic rationales for subsidies, growth of Chinese subsidies, government borrowing, industrial development, sState control of markets, market-transition theory, multi-organizational Chinese state, state as shareholder, state capitalism
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