A report published by the Center for Strategic and International Studies on Monday found out that the Chinese Communist Party (CCP) spent more in helping its favored industries with state-directed funds, when compared to other major economies.
The study, authored by Scott Kennedy and others, found out that China uses state-directed funds, cheap loans and other government incentives and the support amounted to at least 1.73% of its gross domestic product (GDP) for 2019.
A report by the Wall Street Journal (WSJ) said that in dollar terms it amounts to $248 billion (based on market exchange rates) and if exchange rates that adjust differing costs across countries are taken into account then it exceeds $407 billion – both amounts exceeding Chinese military spending.
The WSJ report said that the study showed that in terms of GDP it was higher than the other countries’ economies which were also analyzed.
The paper studied the economies of South Korea, France,Germany, Japan, Taiwan, the US and Brazil and found that the US and South Korea spent 0.39% and 0.67% of their GDPs on industrial support in 2019.
China analysts told the WSJ that the way China discloses such spending can be deemed suspicious.
CSIS analysts Gerard DiPippo and Ilaria Mazzocco told the WSJ that the CCP’s control of the Chinese economy allows the CCP to have enormous abilities to direct financial resources in a manner that other economies will not be able to.
The paper aims to start discussions regarding the global economic impact of Chinese industrial spending.
It also says that China’s industrial support stands out because many economists and officials felt that once the Chinese economy matured the CCP would gradually reduce the state’s role in directing credit and other resources.
The study found out that such spending only accelerated during president Xi Jinping’s tenure as Xi believes that China’s industrial policy is necessary to reduce China’s economic dependence on other nations and rather increase their dependence on China.
However, China now is not playing ‘catch up’ anymore with the West technologically and now aims to become the leader in industries such as electric vehicles and artificial intelligence.
It remains to be seen that after publishing this report will US president Joe Biden, who is on a Seoul-Tokyo trip, step back on lifting trade tariffs imposed on China. The US can also invoke Section 301 of its constitution’s Trade Act allowing it to take punitive action against its trade partners.
(with inputs from Center for Strategic and International Studies and The Wall Street Journal)
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