Subsidies: The Chinese Love Them, But So Does the West

The recent European raid on the offices of the Chinese security equipment manufacturer Nuctech as part of an investigation into subsidies, based on the new Regulation on Foreign Subsidies, has cemented relations with China. Europe is convinced that the biggest problem for the decline in EU competitiveness is Chinese subsidies. There is no doubt that China makes abundant use of them. Because it does. Morally and it can, after all, it is a communist country, a state economy, and ‘free’ lunches.

 

The same tools carry a completely different weight in market, liberal economies. They have eagerly reached for the same tools since the pre-industrial era of mercantilism, and quite purposefully, calculated, and targeted after World War II when the whole story exploded from all sides of all oceans. In the shortest version – subsidies were invented by the West, the East has perfectly polished them. The geopolitical problem is that the West is losing power; we are witnessing the extinguishing of one dominance and the rise of another, and as always in history, this is a time of fierce upheavals, threats, and wars.

 

Although Chinese subsidies are global leaders – last year they allocated $2.2 trillion from the budget just for the dirty fossil fuel industry – global subsidies for that same dirty industry are several times larger, around $7 trillion. The US abundantly subsidizes literally everything, including private companies, while agriculture could not survive without them. Nor could Europe.

 

It is clear to anyone with a grain of salt in their head why the EU is violently trampling on the green narrative. It hopes to regain lost positions in global (not only) trade by leading in CO2 reduction. Unfortunately, Europe could not have chosen a worse time for the green transition. Exhausted by never more generous pandemic subsidies, and then by a war on its own border that it finances in all forms, it is forced to procure oil and gas (which it cannot eliminate from use overnight) and raw materials for that same transition from countries with which it has practically gone to war. Or through intermediaries, at a much higher cost.

 

The recently passed Regulation on Foreign Subsidies, along with still generous funds, is supposed to push domestic companies (also) in public tenders. After all, all new and medium-new members live on fund money, where funds are just a softer market name for subsidies.

 

However, Kristijan Kotarski from the Faculty of Political Science disagrees with the thesis that equates EU funds with the industrial policy that China has. – EU funds are filled with contributions from wealthier member states that end up in a series of projects in less developed regions of the EU. Of course, states like Germany do not do this out of altruism, but because every euro paid into the EU budget allows them to gain multiple greater benefits from access to the single market. Professor Felbermayr’s calculations show that Germany annually achieves €2,500 per capita benefits from EU membership in exchange for a net payment of €200 into the EU budget – he states.

 

Jadranka Polović from Libertas University says that a broad industrial base helps Beijing gain an advantage in almost all industrial sectors, except in highly sophisticated ones like semiconductor manufacturing.

 

– In the EU, it is believed that thanks to state subsidies, the European market is flooded with cheap products from China. Interestingly, until 2014, neither the US nor the EU, which practically exported almost the entire industry to the East, to China, due to the greed of their own capital, had anything against the Chinese economic model, only praise for the successful integration of China into Western trade and capital flows. In the meantime, China, as a smart country, has invested huge amounts in developing its own technologies, copying much from the West. Now, for example, European manufacturers simply cannot reach the quality of Chinese solar panels, with or without state subsidies. Volkswagen, for instance, sources everything it needs from China, thanks to unreasonable policies of European governments that did not take care to protect their strategic interests. Europe is now in a panic, as it has realized that it is falling behind China in several key sectors – warns Polović.

 

Are the EU and the US right when they attack China for subsidies, while they themselves use them? Read more in the topic of the week in the new issue of the printed and digital Lider.

 

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