Chinese industrial subsidies boost strategic sector exports

Global subsidies reached $108 billion in 2024, doubling since the financial crisis.

Subsidies account for 2.0 percent of domestic firm costs in China, compared to 1.4 percent in the United States and 0.6 percent in the euro area.

While US support relies primarily on tax concessions and euro area support on grants, China relies on below-market-rate borrowing across a broad range of industries.

Sectoral support is concentrated in strategic areas: semiconductors and solar panels received average support worth 3.9 percent and 3.6 percent of firm costs over the last five years, compared to 0.8 percent in the automotive sector.

State-owned firms in Asia receive a substantially higher share of these public funds.

Econometric analysis indicates that increases in Chinese government support lead directly to higher foreign revenues and exports.

The strongest impact occurs within two to three years of deployment.

While subsidies contribute modestly to total aggregate export growth, their relative impact is between four and fourteen times larger in strategic sectors like automobiles, wind turbines, solar panels and semiconductors.

This link between public funding and export performance is not systematically observed in the US or euro area.