ExplainerChina’s industrial subsidies: what are they and why are they a source of tension with the West?

Subsidies are widely used by different levels of government in China to aid economic development, but they are a long-standing source of tension with the West

Beijing has defended its subsidy policies, a legacy from its days as a planned economy, saying the issue is being used to block China’s development

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China’s industrial subsidies have long been a source of tensions with Western nations. Photo: AP

Published: 8:00pm, 20 Feb 2022Updated: 9:31am, 21 Feb 2022

China’s extensive use of industrial subsidies has long been criticised by Western nations who say it creates an unfair playing field for foreign firms operating in the world’s No 2 economy.

The massive amount of money granted to certain sectors and corporations is likely to be a central issue in any further trade talks between Beijing and Washington, which appear to have stalled despite the expiry of the phase-one trade deal.

Below are four key questions to help understand the contentious issue of subsidies.

What industrial subsidies does China use and how big are they?

Subsidies are widely used by different levels of government in China to aid economic development.

Hundreds of cash subsidies are available and scores of Chinese companies are taking advantage of them, according to financial statements of listed firms.

They are used for things like technological development, energy-saving and environmental protection, boosting exports, brand building, construction of new economic development zones, corporate development and incentives.

Preferential loans – especially those granted to state-owned enterprises (SOEs) from state banks – as well as tax, electricity and land preferences are often viewed by foreign companies as implicit subsidies and therefore questioned during anti-countervailing duty investigations.