Why China’s subsidised state-owned enterprises anger US, Europe – and its own private companies
- The electric car sector across the world relies on government support, but the help for state-owned firms to dominate Chinese market has met hostility
- Revamping WTO agreement could address subsidies and disclosure, but China would have demands too – and may be unable to give up ideological attachment to SOEs
On a bitter winter’s day in the central Chinese province of Henan, Song Zehou flushed with pride as he presented a sample car made by his company. Having waited more than eight years for the licences needed, the vice-president of electric carmaker Henan Suda Electric Vehicle Technology was finally able to tell gathered journalists that Suda was ready to produce its first batch.
The private company’s battle to obtain the licences had been a prolonged one. Unlike most of its rivals, Suda had no experience of making traditional cars or batteries. It started from scratch in 2010 with a founder’s innovation: devices that the company claimed could improve engine performance.
It is now competing with American maker Tesla, which is building a car plant in Shanghai – the first in China to be wholly owned by a foreign company. And it reached this point thanks in part to the government subsidies it received.
And it’s those subsidies and other Chinese government support for domestic firms that are at the heart of the trade war with the United States. Critics say the funding and incentives give those companies an unfair advantage in the race to dominate the technology of the future, particularly in the case of the heavily-favoured giants of the Chinese economy: state-owned enterprises.
“Subsidies have risen to the top of the policy agenda because they are central to industrial policy, which is the new fault line in Sino-Western relations – perhaps bigger than trade itself,” said George Magnus, associate at Oxford University’s China Centre and research associate at SOAS, London.
“It is not only subsidies to state-owned enterprises [SOEs] or other preferred companies,” Magnus said. “It is also the principle of the state extending privileges and advantages to local companies, including SOEs, in vital sectors, especially tech, with implications for security and military matters.”