Chinese Gov’t Pours $22B To Prop Up Domestic Cos In 2018

The Chinese government increased subsidies it paid last year, aiming to help Chinese companies weather the economic slowdown in the country.

According to the Financial Times (FT), citing corporate earnings data collected by financial database firm Wind, China and local governments in the country increased payments to companies by 14 percent year over year in 2018. This came as China’s economy grew 6.6 percent last year, the slowest growth increase in 30 years. Scott Kennedy, director of the project on Chinese Business and Political Economy at the Center for Strategic and International Studies (CSIS), told the paper the data reinforces the idea that the government of China helps its local companies stay ahead of competitors. He said the payments include “implicit subsidies and other non-tariff barriers.”

Earlier this month, President Donald Trump levied $200 billion in tariffs on Chinese goods, and put Huawei, the Chinese telecom equipment company, on a blacklist that is expected to cripple its operations. The White House wants China to get rid of state support for corporations. The U.S. has long argued its results in overcapacity, saying this puts China in an unfair position globally.

According to the FT, Chinese oil company Sinopec received ¥7.5 billion ($6.852 million USD) in subsidies, while automakers in China also received hefty sums. With car sales declining in China for the first time in close to 30 years, the government stepped in to help. Wind found that the subsidies paid out in 2018 were equal to 4 percent of the listed companies’ total net profits. Revenue of the listed companies grew at 12.7 percent, which was down close to 7 percent year over year in 2018.

A Shanghai investment bank head told the FT that local governments increased subsidies for listed companies so that the employee rate and tax revenue could be maintained. The data looked at 3,545 listed companies, which the paper noted represents the lion’s share of the economy in China.