Evaluation on China’s subsidies.doc

1、Evaluation on Chinas subsidiesAbstract： China has provided massive subsidies to support domestic firms produce and export. However， more and more countries began to against these subsidies， especially in agricultural sector. The paper will introduce the international trade of China and its subsidies

2、. Subsidies will be evaluated from three perspective： firm perspective， environment perspective and government perspective. Key Words： International Trade； Subsidy； China 1.Introduction 1.1 Overview of Chinas export International trade has become one of the most vital part in Chinas development. Chi

3、na became the largest merchandise trader in 2013. The Volume of Chinas trade in 2013 accounted for about 11% of the world total volume. Its merchandise export volume in 2013 were US$ 2.21 trillion， accounted for 11.7% of world exports （WTO ， 2014， pp. 24-26）. Graph 1 shows the volume of GDP and expo

4、rt in China in the last ten years and Graph 2 shows the structure of merchandise export in China. Graph1 Source： PRC National Bureau of Statistics of China， China Statistical Yearbook Graph 2 Source： World Bank Statistics 1.2 Chinas subsidies Subsidies is a tool that government would adopt to promot

5、e the enterprises initiative to produce certain kind of product for specific purposes and are widely used in all over the world. The reasons that government put forward this policy are various： reshape the industry structure， promote trade， encourage domestic companies to create new technology， gain

6、 a leader position in certain sectors， spread culture and so on （WTO， 2014， p.4）. However， besides improving the level of its own domestic firms， governments may use subsidies to realize other objects， like disturbing the market in enemy country， seeking for new trade partners and so on. Girma S.et

7、al. （2009） adopted a unique approach to calculate the subsidies in China. They find that figures of the subsidies for SOEs to invent new technology or new product can be found in the China Fiscal Yearbooks. Central government have provide 3 special capital support for enterprises： expenditure for SO

8、Es that loss money， expenditure for invention and creation and expenditure for firms capital in case emergency. They add the volume of three items together to estimate the production subsidies that government provided. 2.Evaluation on the export subsidies in China 2.1 Firm perspective Girma （2009） a

9、nd his team examined what kind of effect that subsidies may have on companies. Girma created a new model and they call it potential endogeneity of subsidies， which means that subsidies itself would promote production. They also argue that these effect are more obvious in enterprises that is labor-in

10、tensive and located in mainland. Between 2008 and 2014， solar industry of China grows rapidly. Solar energy industry developed so fast because large amount of subsidies， such as government fund that never need to repay， adequate energy supply， cheaper labor as well as land. Chinese cheap solar produ

11、ct decreased 75% of the original price. Therefore， Chinas trading partners， like the United States and European Union began to block subsidized Chinese products. On the other hand， more and more foreign companies are willing to move their production to China. Also， the increasing export with a cheap

12、er price benefit most of the customers in the world and then create a new up and down cycle. 2.2 Environment perspective 20 years after WTO established， sustainable development was emphasized again. However， China is experiencing one of the most severe environmental degradation in its history. Altho

13、ugh international trade have brought ignorable economic development and resulted in substantially improved living standards for most Chinese people， rapid growth in industrialization and trade has caused considerable environmental damage. Air pollution has become one of the most severe problems in C

14、hina. Many cities are surrounded by haze all year around. According to the World Bank Statistics， only one percent of Chinas citizens can breathe the air that meets EU standards. Authorities in China today began to realize the importance of environmental protection. President Xi emphasized that buil

15、ding environmental friendly society and realizing sustainable development is one of the most important tasks in the current era. 2.3 Government perspective Chinese industries are dominated by gigantic SOEs， especially during the period after reform and opening up policy. Government have to provide m

16、assive of subsidies to support these enterprises produce and export. Therefore， they can survive from the fierce competition in the global market. Chinese government has to pay this huge bill to avoid a bad unemployment rates and social conflicts due to the loss of SOEs. Because most of the workers

17、were working in the SOEs. Government， actually， are willing to pay the price of economic efficiency to meet the political， social and economic goals. In order to get the comparative advantage in this global game. The result is obvious： China has become the largest manufacturer and the largest export

18、er in the world. Some industries， like solar， photovoltaic industry， has even become the leader in the global market. China is a victim of the process， too. Massive inefficient subsidies has brought a lot of pressure to China. In 2014， the subsidies for agriculture cost central government over ￥170

19、billion. And government is hesitating increasing this subsidy because it might broke the upper limit of Yellow Box that China make when joined WTO. 3.Conclusion Chinas subsidies has played a crucial role in its international trade process and helped China and Chinese enterprises get advantage in the

20、 global market. However， it has also brought problems like environment pollution， impact to foreign enterprises， and inefficient use of resources and so on. While in long term China would decreased subsidies and take more obligations， however， subsides would adjust but does not decrease in short ter

21、m. Some sectors like new energy and agriculture， might even have more volume and kinds of subsidies. . Reference： 1WTO， 2014， World Trade Report 2014： Trade and development： recent trends and the role of the WTO， https：/www.wto.org/english/res_e/publications_e/wtr14_e.htm. 2Natalia， Rodrguez-Clare &

22、 AndrsTrade， A 2013 Multinational Production， and the Gains from Openness Journal of Political Economy， vol.121， no2， pp.273-322. 3Girma， S.， Gong， Y.， G？rg， H. & Yu， Z.， 2009， Can Production Subsidies Explain Chinas Export Performance？ Evidence from Firm?level Data， Scandinavian Journal of Economics， vol.111， no4， pp.863-891.