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Jürgen Matthes in CESifo Forum External Publication 16. September 2020 China’s Market Distortions and the Impact of the Covid-19 Crisis

Subsidization in China is pervasive at numerous levels of government and appears to be an inherent element of Chinese state capitalism. Despite a severe lack of transparency, the available information seems to suggest that the extent of Chinese subsidies is extraordinarily large.

External Publication
China’s Market Distortions and the Impact of the Covid-19 Crisis
Jürgen Matthes in CESifo Forum External Publication 16. September 2020

China’s Market Distortions and the Impact of the Covid-19 Crisis

German Economic Institute (IW) German Economic Institute (IW)

Subsidization in China is pervasive at numerous levels of government and appears to be an inherent element of Chinese state capitalism. Despite a severe lack of transparency, the available information seems to suggest that the extent of Chinese subsidies is extraordinarily large.

Moreover, the resulting overcapacities could lead to considerable and increasing distortions on the world market in certain sectors. An initial assessment of the potential effects of the Covid-19 crisis on China’s industrial policy model does not suggest a major change in subsidization policy. This constellation bodes ill for the future of the multilateral trading system. Until a few years ago, China was primarily a large and growing market and a low-cost production location for European firms. In the meantime, however, Chinese companies have become serious competitors. This is confirmed by various surveys of German and European firms (GTAI 2018; AHK 2019; European Chamber 2019). If the increasing competitive pressures from China were to be based on fair conditions, it would primarily be the task of European companies and economic policymakers to meet this challenge.

In fact, to some extent China derives normal competitive edges from cost advantages and economies of scale as well as from investing heavily in education and research. But beyond this, the Chinese state also employs problematic measures that seriously distort competition: subsidies, forced technology transfer, and unequal market access conditions. In particular, the Chinese government provides extensive direct and indirect subsidies for industrial policy purposes. However, the related empirical evidence is scarce because the state-capitalist system is complex and intransparent. Against this background, this article provides an overview of several available relevant studies that
shed light on subsidy-induced competitive distortions by China. 

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Luftaufnahme der Innenstadt von Jakarta, der Hauptstadt Indonesiens.
Samina Sultan / Gero Kunath / Henrik Förster/ Jürgen Matthes IW-Report No. 9 15. February 2024

Indonesia: A new Indo-Pacific partner?

Indonesia will elect a new president on 14 February. After ten successful years in office, Joko Widodo is not allowed to run for office again. He has ushered in an era of reform in the country.

IW

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Jürgen Matthes in The European Money and Finance Forum External Publication 18. January 2024

Competition from China in the EU market for Germany’s manufacturing sector

China has continuously gained market shares in the EU import market since 2000. At the same time, Germany’s share in EU imports has declined since 2005. This divergence is particularly relevant for sophisticated manufacturing products in which Germany is ...

IW

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