China
Government subsidies don’t boost Chinese firms’ productivity
China’s industrial subsidies have caused considerable controversy both internationally and domestically. Trading partners have accused China of unfairly favouring its indigenous firms with subsidies, leaving foreign companies at a disadvantage in the race to lead the technologies of the future.
Governments around the world regularly spend an enormous amount of money subsidising businesses. But few spend like China. A 2022 report suggests that China spends 1.7–5 per cent of its GDP on industrial policies, more than most countries.
Authors: Lee G Branstetter and Mengjia Ren, Carnegie Mellon University and Guangwei Li, ShanghaiTech University
As Lardy shows, direct subsidies to Chinese listed companies have grown substantially from 5 per cent of listed firms’ profits in 2010 to almost 14 per cent in 2015. Our own calculations corroborate this upward trend. From 2007 to 2018, total government subsidies for Chinese listed companies surged over sevenfold.
China’s industrial subsidies have caused considerable controversy both internationally and domestically. Trading partners have accused China of unfairly favouring its indigenous firms with subsidies, leaving foreign companies at a disadvantage in the race to lead the technologies of the future.
Within China, supporters argue that corporate subsidies are necessary for China to upgrade its industries and achieve technological self-sufficiency. But critics say that policymakers’ preference for large state-owned enterprises and national champions has disadvantaged private, small and medium-sized businesses.
The principal economic rationale for government subsidies is to fix market failures, but blindly doling out taxpayer money can lead to more market distortions. Research points to mixed findings on the effects of government subsidies on productivity, with studies finding positive, negative or no effects.
Since 2007, Chinese law requires listed companies to disclose information about the amount and reasons for government subsidies received over the previous financial year. We took advantage of this regulation and used Google’s BERT (an AI-powered natural language model) to categorise subsidies received by firms listed on the Shanghai and Shenzhen stock exchanges between 2007 to 2018 — excluding financial services firms.
But omissions and ambiguities in data disclosure when categorising subsidies reveals that Chinese firms frequently neglect to provide subsidy details despite disclosure requirements. Consequently, interpreting results based on categorised subsidies must be approached with caution, as these findings are applicable only to firms that disclose the specifics of the subsidies they received.
The empirical analysis we conducted included two stages. It first involved an estimate standard Cobb–Douglas production functions for each industry to calculate the total-factor productivity (TFP) for each firm in each year. The correlation between government subsidies and the estimated TFP was found by running two regressions.
The analysis does not support the view that the Chinese government consistently ‘picks winners’. There appears to be a negative correlation between subsidies and TFP, indicating that the government does not prioritise productivity when awarding subsidies. On the other hand, there is a strong positive correlation between subsidies and firm size — measured by total assets — and between subsidies and net profit.
These results suggest that subsidies are mostly allocated to larger and more profitable firms, even though they may have lower productivity.
China
The Latest Updates on China’s Visa-Free Policies
China has fully reopened its borders, allowing international tourism to recover. Visa-free travel policies are reinstated, and visa fees for foreign travelers will be reduced by 25% from December 11, 2023, to December 31, 2024. China and Singapore are also pursuing a 30-day visa-free travel arrangement.
China has fully reopened its borders, promising recovery of international tourism and travel. Many of the visa-free travel policies that were in place prior to the pandemic have therefore come back into effect, enabling people from a wide range of countries to visit
UPDATE (December 8, 2023): On December 8, 2023, the Ministry of Foreign Affairs released the Notice on Temporary Reduction of Fees for Applying Visa to China. According to this notice, during the period from December 11, 2023, to December 31, 2024, China shall cut visa fees by 25 percent across the board for foreign travelers. For more details, please consult with your local Chinese embassy or consulate.
UPDATE (December 7, 2023): China and Singapore are seeking to establish a mutual 30-day visa-free travel arrangement to boost people exchanges between the two countries, according to Reuters. At the time of writing, no further details have been released regarding the timeline or the eligibility, requirement, and application procedures of this new arrangement. Click here for more information regarding this mutual 30-day visa-free travel between China and Singapore.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Analysis of UK Investments in China for 2023: Evaluating Deals, Values, M&A, and Investments
British Government underwent reshuffle with pro-China David Cameron as Foreign Minister. Possible mild rapprochement with Beijing. Analysis of UK investments in China this year reveals potential trends. Report includes unique Q1-Q3 data and predicts outlook for 2024.
By Chris Devonshire-Ellis & Henry Tillman
With a reshuffle in the British Government and ex-Prime Minister – and generally pro-China politician David Cameron now as the UK’s Foreign Minister, there have been early signs of a potential mild rapprochement in the British governments overall attitude towards Beijing.
But before people get carried away, we can look at what investments the UK has made into China this year – as investments made while anti-China politics have tended to be the norm are typically indicative of stronger trends. In this report I include unique data that has not previously been made public, and examine the Q1-Q3 investment trends to see what may lie ahead for 2024.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Ratings agency cuts China’s credit outlook
Financially strapped local governments and state-owned enterprises pose a risk to China’s future economic growth, the ratings agency Moody’s said today in a report downgrading the country’s credit outlook from stable to negative.
Growing evidence suggests that the central government will be required to shore up the debt-laden entities, creating “broad downside risks to China’s fiscal, economic and institutional strength,” Moody’s said.
Local governments are thought to have accumulated trillions of dollars of debt due to spending during the COVID pandemic and a loss of income due to a troubled real estate market.
Despite the challenges, Moody’s maintained China’s overall credit rating of A1, which it describes as low-risk though not the safest category of investment. Moody’s said the rating reflects its belief in the country’s “financial and institutional resources to manage the transition in an orderly fashion.”
“Its economy’s vast size and robust, albeit slowing, potential growth rate, support its high shock absorption capacity,” Moody’s said.
Even so, the outlook downgrade signals some concern about China’s future creditworthiness.
In a statement, China’s Foreign Ministry said it was disappointed in the ratings change and that Moody’s concerns about its growth and financial stability were “unnecessary.”
“In recent years, through the continuous efforts of relevant departments and local governments, China has established a system to prevent and resolve the risks of local government debt,” the ministry said. “The trend of disorderly and illegal borrowing by local governments has been initially curbed, and positive results have been achieved in the disposal of local government debt.”
Moody’s projects China’s annual growth rate will be 4% in 2024 and 2025 but average 3.8% from 2026 to 2030, at which time it might drop again to 3.5%.
Derek Scissors, the chief economist at China Beige Book, a firm that analyzes China’s economy for investors, said in an email that the downgrade was to be expected.
“It’s a recognition of long-standing conditions, not a new development,” said Scissors, who is also a senior fellow at the free-market think tank American Enterprise Institute in Washington. “I think growth will be faster than Moody’s thinks in 2024 and decelerate more than they think after that.”
Fees from local land sales account for nearly 40% of the revenue to local and regional governments. But China’s real-estate sector has been hit hard by overbuilding. One giant, Evergrande, defaulted under massive debt last year, triggering a broader real estate crisis.
Moody’s report said that “the downsizing of the property sector is a major structural shift in China’s growth drivers which is ongoing and could represent a more significant drag to China’s overall economic growth rate than currently assessed.”
Edited by Tara McKelvey
Read the rest of this article here >>> Ratings agency cuts China’s credit outlook
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- Analysis of UK Investments in China for 2023: Evaluating Deals, Values, M&A, and Investments
- Ratings agency cuts China’s credit outlook
- Balancing China’s labour migration through education
- Annual Confirmation for China IIT Special Additional Deductions to Commence on December 1st
