1. A prominent Chinese economist, Guo Kai of the China Finance 40 Forum Institute, has formally rebutted a June OECD report that attributes China's rapid rise in electric vehicles, batteries, solar panels, and other emerging industries primarily to government subsidies. Guo argues the OECD's conclusions rest on flawed methodological assumptions about bank lending and fail to account for deeper structural sources of industrial competitiveness. [para. 1][para. 2]
2. The debate unfolds amidst rising global trade tensions, where Western governments increasingly cite alleged state support as the main justification for imposing tariffs and trade restrictions on Chinese clean-technology and manufacturing exports. [para. 3]
3. Official data shows China's exports of its "new three"—EVs, lithium batteries, and solar cells—surged 51.6% year-on-year in the first half of the year, reaching $118.4 billion. EV shipments alone exceeded 1 million units in June. Exports linked to the AI supply chain also grew strongly, with integrated circuits rising 96.1% and computer products up 41.3%. [para. 4]
4. The OECD report, released on June 1, estimated that subsidies accounted for 2.4 percentage points of revenue for sampled Chinese firms during 2005-2024, with about two-thirds of this support coming from what it classified as below-market borrowing through the banking system. [para. 5]
5. Guo's primary objection targets the OECD's methodology for defining subsidized credit. He argues the OECD incorrectly uses China's Loan Prime Rate (LPR) as a policy benchmark, when in reality it functions as a market lending rate. Citing central bank data, he notes that in March 2026, 48.8% of loans were issued below the LPR, 9.3% at the LPR, and 41.9% above it, indicating lending below the benchmark is a common market phenomenon, not evidence of state support. Furthermore, China's five-year LPR (~3.5%) remains significantly higher than government bond yields (~1.7%-2.2%), meaning firms borrowing near the LPR still pay costs well above the government's own funding cost, undermining the claim of subsidized financing. [para. 6][para. 7]
6. Guo also contends that bank credit in China still predominantly flows to traditional sectors dominated by state-owned enterprises, such as infrastructure, utilities, and construction, rather than the emerging industries drawing foreign scrutiny. Citing a CF40 research report, he highlights that between 2019 and 2025, equity issuance accounted for 75% of external financing for asset-light emerging-technology firms, indicating a significant shift from bank loans to capital markets. [para. 8][para. 9]
7. According to the CF40 report, government subsidies for listed new-economy companies have actually been declining. Total subsidies peaked in 2022 and fell 22.6% by 2025 to 175.8 billion yuan, representing only 0.3% of listed companies' revenue that year. Case studies illustrate this trend: BYD's subsidies remained broadly stable at low tens-of-billions of yuan, while its revenue surged to 804 billion yuan and net profit reached 33.8 billion yuan, reducing subsidies to just 7% of profit. Similarly, solar inverter maker Sungrow Power Supply saw revenue increase more than eightfold between 2018 and 2025, with subsidies comprising only 0.18% of cumulative revenue. This weakening correlation challenges the view that subsidies are the primary driver of rapid growth. [para. 10][para. 11]
8. Instead, Guo argues that China's industrial competitiveness is better explained by its vast human capital—producing 3.6 million STEM graduates and 1.3 million engineers annually—dense supplier networks, intense domestic competition, rapid commercialization cycles, and a massive market that collectively force companies to innovate. [para. 12]
9. While acknowledging that China faces ongoing macroeconomic imbalances, such as weak domestic consumption and inefficient capital allocation in traditional sectors, Guo argues the relevant question is how effectively state support translates into durable industrial competitiveness. He concludes that subsidies are a partial and weakening explanation, and that further market-oriented reforms addressing domestic distortions are more likely to strengthen than weaken the global competitiveness of Chinese technology companies. [para. 13][para. 14]
AI generated, for reference only
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