Wednesday, July 24, 2013

China's real industrial advantage

My post on the s+b blog this week is about a book that seeks to illuminate one of the less understood sources of China's industrial might:

Government Subsidies Pave the Way in China
In the 2000s, China transformed itself from a net importer to one of the largest producers and exporters in the world in four mature, capital-intensive industries: steel, glass, paper, and auto parts. What accounted for this success, which in each case was achieved in a short five-year span? 
Industry research reveals that each of the four has relatively low labor requirements, so it wasn't China’s seemingly endless supply of inexpensive workers. The Chinese companies didn't enjoy economies of scale or scope. Nor did the undervaluation of the renminbi explain their growth.
According to Usha Haley, director of West Virginia University’s Robbins Center for Global Business and Strategy, and George Haley, a professor of marketing and international business at the University of New Haven, it was government subsidies that drove this industrial transformation. In Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy (Oxford University Press, 2013), they calculate that subsidies from China’s governmental bodies—in the form of free or low-cost loans, energy, materials, land, and technology—provided the dollar equivalent of as much as 30 percent of the output of these four the rest here.

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