In the United States and Europe, the biggest companies most commonly benefit from subsidies and bailouts. The “too-big-to-fail” banks like JP Morgan and Bank of America and Citigroup, struggling automakers like GM and Stallantis, and even highly profitable companies like Intel and Taiwan Semiconductor are granted billions in subsidies, low-cost loans, and aid.
In contrast, China’s industrial policy involves funding thousands of small companies that show high potential in certain key industrial fields. By identifying “little giants” and “single champions”, Beijing’s industrial policy is bottom-up.
They begin by studying industrial sectors, and looking for chokepoints, or bottlenecks, which may be exploited by foreign countries or companies, and identify companies in China that can spin up quickly to overcome them. They also identify Chinese companies that are successful in the domestic market, and which can dominate globally if given sufficient capital, research funding, partnerships, and access to China’s overseas supply chains.
The Chinese economic, political, financial, and even educational systems are organized to support these strategies, and help to explain why Chinese companies can so quickly be organized to take market share, then entire supply and value chains, in global markets.
Resources and links:
Wall Street Journal, China cultivates thousands of little giants in aerospace and telecom to outdo US
Rice University, China is positioning itself to dominate the world’s copper supply
China positioning itself to dominate world’s copper supply
Bloomberg, China’s dominance in critical minerals is a serious problem for the West
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In the world of economics, government subsidies play a significant role in supporting businesses and industries. However, there is a stark contrast between how Western countries and China choose to allocate these subsidies.
In Western countries such as the United States and European nations, the focus is often on providing subsidies to the largest and most influential companies in key industries. These subsidies are aimed at promoting growth, innovation, and competitiveness on a global scale. Companies in sectors like technology, automotive, and energy often benefit from these subsidies, helping them maintain their position as industry leaders.
On the other hand, China takes a different approach when it comes to subsidizing businesses. In recent years, China has been focusing on supporting small and medium-sized enterprises (SMEs) through various forms of subsidies and incentives. This strategy is aimed at promoting entrepreneurship, fostering innovation, and boosting economic growth at the grassroots level.
One of the key reasons for China’s emphasis on subsidizing small businesses is to address the imbalance in the country’s economy. In China, large state-owned enterprises have traditionally received significant government support, leading to concerns about monopolies and inefficiencies. By redirecting subsidies towards SMEs, China aims to create a more diverse and competitive business landscape.
Additionally, supporting small businesses is seen as a way to promote social stability and reduce income inequality in China. SMEs are often major employers in rural areas and provide opportunities for individuals to start their own businesses and improve their livelihoods. By providing subsidies to these companies, the government can help create jobs, increase incomes, and alleviate poverty in underserved communities.
While both approaches have their respective merits, it is essential to consider the long-term implications of subsidy policies. In Western countries, the focus on subsidizing large companies may lead to the consolidation of power and resources in the hands of a few corporations, potentially stifling competition and innovation. On the other hand, China’s emphasis on supporting small businesses may create challenges in terms of scalability and sustainability.
As the global economy continues to evolve, finding the right balance between subsidizing large corporations and small businesses will be crucial for policymakers. By carefully assessing the needs of different industries and sectors, governments can ensure that subsidies are used effectively to support economic growth, innovation, and job creation for all businesses, regardless of their size.
Apologies to everyone. For the first hour the comments were disabled, for some reason.
Should be fine now.
Gee….its as if using massive wealth to help out small and medium enterprises is common sense….rather than throwing valuable capital at fat cat huge corporations…
People don't understand this, china really following how U.S do things, but it only change to do what works for them. Big companies want to keep it's hegemony and small companies would work ovetime to make it works. A hungry man would do anything to survive, a man with wealth wont be that hungry for success.
You earnd my respect with your fact based comments and humble expression .
Just like sir munro on ev's.
Regards engineer arshad pakistan
American is too arrogant to learn from their competitors, instead to restrain and sanction them
What China is doing with this industrial policy is a necessary step ro ensure it is not blocked or squeezed from accessing critical technology and products important to its development and advancement. This is a hard earned lesson from decades of its economic development. In the past China was blocked by the west and Japan from technology and products or had to pay very high price to access critical technology and products. An example of this is the high speed rail where China had difficulty in getting the high tech bearings, wheels and other components from the west. It had to spent tremendous efforts and time to develop domestic supply. China is now at a stage where it will make sure that it has its own domestic supply of critical components for future technology and products.
My small company is in design and engineering of biotech . Perhaps if it was in China, it would be big by now
Is communist government oversight really that bad in this regard compared to techno-feudalism in the west?
Look at the Magnificent 7… prime example of an oligopoly market dominated by a select few.
US protects mismanaged sacred cows owned by the connected while China actually meets and creates market demand. And the US is the capitalist country? Go figure.
In a nut shell, USA is run by plutocrats, China is governed by meriticrats. Donald Trump and Joe Biden will never make it in China's system of governance.
Actually the Chinese strategy is learned from America. Sad thing is America forget it.
Capitalism,are mentality retarded on small enterprises,serving only the top 1% oligarchy .
These oligarchy are the top funders in any election .
Great points about the US hypocrisy inherent and embedded in the current state of affairs. Instead of letting innovation drive fierce competition we are using taxpayer dollars to write checks to public US and foreign companies. WOW who is the more socialist in practice?
This guy is a bum with a microphone and camera. He talks out of his ass most of the time. He believes his opinion is fact. And he makes up facts to suit his narrative. He’s too lazy to do research on a subject he knows little about.
Unfortunately in India too we have this US type businesses supporting strategy (if we can call it a strategy) wherein a few large corporates and centi-billionaires are being given all sorts of favours and wealth accumulation is only happening at that level.
May be that's why US and India have such mutual attraction because the similar kinds of failed policies. But at least USA is 80,000 dollars per capita GDP country so US citizens may not be suffering as much as an average Indian.
I guess the difference between President Xi and President Biden is, President Xi probably could remember the name of thousand small and potential firms in China needed help. While President Biden probably only could remember the name of few super big donors needed help.
You should just move to china so you can be with your people
the problem is these corporations by share buy-back enriching the fat cat
The way you explain those issues are really interesting and well prepared!
The difference between the Chinese system and the American system can also boil down to their respective mentalities. Americans are always like, Go Big or Go Home! If you hit a home run and win the game, that's very nice. If you don't, then that's the end of it. Chinese way be like, in order to mitigate the risk, let's cross the river by feeling the stones. Achieve the goals incrementally.
America used to believe in small business too and I believe many Americans still do, but somehow they have collectively lost their way. Everything nowadays is dominated by Big Oil, Big Tech, Big Pharma, Big this, Big that. Governments favor the big names more and ignore the mom and pop corner stalls. SMEs employ more people but the government simply has forgotten that. You can even become a street food seller without going through hoops of bureaucratic paperwork.
The contrast between the US- plutocracy, a system of 1%, by 1% and for 1% and China-meritocracy, governed by people selected according to their specialities and performance, is getting bigger and bigger. The result is there for everyone to see. The more the West tries to ignore this result using smear campaigns and propaganda, the further is the distance between fact and reality.
The most insightful one
Chinese's less selfish than Americans.
Very informative, thank you. Keep up the good work.
We the Chinese don't leave no one behind!
I think that you're not right. You just repeat what you heard . China probably also subsidizes big companies – because they pay for research and development and introduce new technologies. Do you think that developing 5G technology wasn't subsidized somehow by China ? In China they probably also protect financial institutions like some real estate giants which went bunkrupt. By the way China has even state owned companies which for example developed their Chinese airplane – don;'t you think this development of an airplane wasn't 100% subsidized by the state. And also in the US Boeing was subsidized during Covid. So both countries use similar subsidies for tech companies, airplane makers, agricultural production and financial companies. As for the Chips Act, China has its own Chip Fund to support domestic tech companies and help them grow under American sanctions. By they way – you said that in China they think that big companies don't innovate – seems untrue because China is very proud of Huawei which one of the biggest companies in the world and it developed many innovations like Chinese 5 G technology.
Very well analysis. Bravo
This guy tells the truth
US politicians are funded and controlled by Oligarchs, which is why. Until SCOTUS' judgment in United Citizens vs FEC is reversed, US is not a true democracy as it is in the Oligarchs' interests & not the American Public's that US is being governed !@#$
Well Mr USA.
You has decided the companies are the financers of the state in stead of the people.
Its all over: Schools, education, hospitals, medical and selling very expesive crap food.
Many other very different states doing in well not doing that at all. And its allowed to unite You many states more semilar to some kind of EU as model.
I met the same 50 ways for roads,cars and drivers licenses.
Why there are not even same road signs from Fairbanks to Miami. Are teenagers more mature in some states then others.
I agree small companies has to have better help and sometimes is big is not good idea.