Academia
Like every major economy, China does use industrial policy, and its subsidies have mattered. But subsidies are no longer the most convincing explanation for Chinese firms’ growing competitiveness.
Individual investors visit a securities firm on June 6 in the complex of the West Kowloon rail station in Hong Kong, China. (AFP/Tommy Wang)
Chinese firms have achieved global leadership in industries once assumed to be the preserve of advanced economies: electric vehicles, batteries, industrial robots, solar panels and artificial intelligence — to name just a few. The standard explanation for this success is that the Chinese state subsidizes production, an argument that has now been given the institutional weight of a major Organisation for Economic Co-operation and Development report.This particular report matters because its conclusions are likely to shape policy debates well beyond the OECD itself. Yet the subsidy story is incomplete and increasingly inadequate. Like every major economy, China does use industrial policy, and its subsidies have mattered. But subsidies are no longer the most convincing explanation for Chinese firms’ growing competitiveness. The OECD is applying an old framework to an economy that has changed.
