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Who’s subsidizing whom? November 20, 2012

Posted by Geoff in Politics, Policy and Political Science.
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Earlier I listened to today’s hour of On Point on China’s power transition. It was generally an interesting conversation up until they began talking about China’s development model. Susan Shirk repeated the nostrum about how, in order to maintain its current level of growth, China needs to stop subsidizing its state-owned enterprises, who receive all sorts of privileged access to credit, inputs, and land. This is deeply ironic considering that China not only subsidizes US consumption by buying Treasury securities, but it also grants privileges to US corporate production in its export processing zones by subsidizing land and exempting foreign firms from domestic taxes and regulations, while also providing the security apparatus that keeps workers in check.

When the Chinese government grants privileges to its own companies, Western commentators decry it as “corrupt rent-seeking,” but when the same privileges are granted to foreign – especially US-owned – firms, they call it “creating positive incentives” in order to “enhance competitiveness.” How is China supposed to create new technological capabilities, diversify production, and generate its own brands when they are not allowed to offer the same benefits to their own companies that, for example, the US government (especially, but certainly not exclusively, at the state and local levels) grants to American companies?

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