Beijing is outpacing global competitors by strategically targeting key sectors with subsidies, according to Gillian Tett of the Financial Times. Chinese exports surged to nearly US$4 trillion last year, prompting concern among international policymakers about a potential "second China shock."

Last month, the Paris-based Organisation for Economic Co-operation and Development (OECD) reported that China’s subsidies in 2024 were three to eight times higher than those of wealthy nations. These subsidies have contributed to up to 60% of China’s global market share gains between 2005 and 2023. Even by a narrow measure, subsidies accounted for more than 2.5% of value added in 2023, up from 1% in 2015, averaging around 1.8% over the period—a significant figure given tight business margins.

The International Monetary Fund (IMF) projects that if subsidy trends from 2015 to 2023 continue, China’s electronics exports could increase by about 20% over the long term.

This aggressive subsidy strategy has sparked a debate between Chinese economists and the OECD. Gillian Tett noted in Saudi Arabia earlier this year that if the current trajectory persists, it could ironically be China, not the US, that undermines the rules-based trading system, as countries may feel compelled to impose tariffs on Chinese goods.

The rapid growth in Chinese exports and the scale of subsidies have raised questions about how other countries can compete in this evolving global economic landscape.

Sources