Chinese scholar challenges Western narrative linking subsidies to industrial overcapacity

A commentary in the Communist Party's flagship newspaper People's Daily has mounted a data-driven defence of China's industrial policy, rejecting Western allegations that state subsidies are the primary driver of industrial overcapacity. The piece, authored by Cui Fan, professor of international trade at the University of International Business and Economics in Beijing, cites research from the University of British Columbia covering 2009 to 2020 that places China eleventh in the frequency of industrial policy interventions among major economies, behind Germany, Japan, Brazil and the United States.

The Chinese argument: subsidies as standard practice

Cui's central contention is straightforward: industrial subsidies are not a Chinese peculiarity but a standard tool of economic governance used more intensively by other major economies. The University of British Columbia dataset, which defines industrial policy as state actions such as tariffs and subsidies aimed at shaping national economic activity, shows China deploying such measures less frequently than its peers despite being the world's second-largest economy. "Reasonable industrial subsidies aimed at addressing market failures and supporting emerging industries are a globally recognised and legitimate policy tool," Cui writes.

The distinction between "reasonable" and "discriminatory" subsidies is not merely semantic. It mirrors the language of the World Trade Organization's Agreement on Subsidies and Countervailing Measures, which permits certain non-actionable subsidies, those for research, regional development, or environmental adaptation, while prohibiting export subsidies and those contingent on domestic content. Cui's commentary implicitly argues that China's subsidies fall predominantly into the permitted category, while accusing unnamed Western economies of deploying discriminatory measures that violate WTO rules.

What the UBC research actually shows

The University of British Columbia study referenced by Cui has not been published in a peer-reviewed journal, and the commentary does not provide a direct citation. The dataset reportedly covers 2009 to 2020, a period that includes the global financial crisis, the European sovereign debt crisis, and the first two years of the COVID-19 pandemic, all moments when governments worldwide expanded industrial intervention. That China ranks eleventh in frequency during this period is a claim that requires scrutiny: the methodology for counting "industrial policy" actions, the weighting of different policy types, and the treatment of sub-national interventions in federal systems such as Germany and the United States all affect the ranking.

European trade officials have long argued that simple frequency counts miss the point. The European Commission's 2023 report on foreign subsidies in the single market emphasised that the scale, opacity, and targeting of Chinese state support, particularly in strategic sectors such as semiconductors, batteries, and electric vehicles, create distortions that a raw count of policy actions cannot capture. The EU's Foreign Subsidies Regulation, which entered into force in January 2023, was designed precisely to address subsidies that fall outside traditional trade defence instruments.

Europe's own industrial policy turn

The irony of the current moment is that Europe has simultaneously embraced a more muscular industrial policy of its own. The European Chips Act, the Net Zero Industry Act, and the Strategic Technologies for Europe Platform (STEP) all involve significant public funding directed at strategic sectors. The European Commission's Temporary Crisis and Transition Framework, adopted in March 2023 and extended through 2025, relaxed state aid rules to allow member states to match subsidies offered by third countries, explicitly including the United States' Inflation Reduction Act and China's own support programmes.

This convergence makes the debate over Chinese subsidies more complicated than a simple binary of free markets versus state intervention. When Germany provides €10 billion in support for Intel's Magdeburg fab, or France backs its battery champion Verkor, they are deploying the same "reasonable industrial subsidies" that Cui defends. The difference, European officials argue, lies in transparency, proportionality, and the absence of forced technology transfer requirements, areas where China's system remains opaque.

The overcapacity charge: evidence and politics

The overcapacity narrative gained traction in Western capitals during 2023 and 2024, as Chinese exports of electric vehicles, solar panels, and lithium-ion batteries surged. US Treasury Secretary Janet Yellen raised the issue directly with Chinese counterparts in April 2024, arguing that Chinese industrial policy had created supply far exceeding domestic and global demand. The European Commission launched an anti-subsidy investigation into Chinese battery electric vehicles in October 2023, provisionally concluding in June 2024 that the value chain benefited from countervailable subsidies.

Cui's rebuttal addresses the supply-side argument by emphasising demand: "The international competitiveness of Chinese industries stems from internal demand backed by a vast domestic market, a complete industrial supply chain, and a deep technical talent pool built over time." This is empirically partially true. China's domestic EV market absorbed 9.5 million units in 2024, the largest in the world, and its solar installation capacity added 216 gigawatts in the same year. But it does not answer the question of whether production capacity, particularly in newer sectors like advanced semiconductors, exceeds what global demand can absorb at commercially viable prices.

WTO rules and the enforcement gap

The commentary's invocation of WTO rules is selective. China has been a WTO member since 2001, yet its subsidy notification compliance has been repeatedly criticised by the United States, EU, and Japan in the WTO's Committee on Subsidies and Countervailing Measures. The most recent WTO trade policy review of China, published in 2023, noted that China's notifications of subsidies remained incomplete, particularly regarding sub-central government support and state-owned enterprise financing. The WTO's dispute settlement system, paralysed since 2019 by the United States' blocking of Appellate Body appointments, offers no functioning forum for resolving these disagreements.

This enforcement vacuum is precisely why the EU created its Foreign Subsidies Regulation and why the United States has relied on Section 301 investigations and the Inflation Reduction Act's domestic content requirements. Both are extra-WTO measures born of frustration with the multilateral system's inability to discipline modern industrial subsidies. Cui's call to focus on "discriminatory subsidies that violate World Trade Organization rules" implicitly acknowledges this gap while placing the onus for reform on Western capitals.

Why the People's Daily platform matters

The publication venue is as significant as the argument. People's Daily is the official mouthpiece of the Communist Party's Central Committee. A commentary on trade policy by a Beijing-based academic does not appear there without signalling official approval. The piece represents a coordinated pushback against the overcapacity narrative ahead of several critical deadlines: the European Commission's final determination on Chinese EV anti-subsidy duties (expected by October 2024), the US presidential election in November 2024, and the next WTO ministerial conference.

Chinese state media has intensified its English-language output on trade issues in recent months. Xinhua, CGTN, and China Daily have all run features citing the same UBC research and similar arguments about China's relatively low industrial policy frequency. This suggests a centralised messaging strategy aimed at European and American policymakers, business communities, and the WTO membership.

What happens next

The European Commission's final determination on Chinese EV anti-subsidy duties, due by late October 2024, will be the first concrete test of whether Beijing's rebuttal influences European decision-making. Member states are divided: Germany and Hungary have warned against a trade war, while France and Italy favour robust defences. The Commission's proposal will require a qualified majority to block, 15 member states representing 65% of the EU population. Meanwhile, the UBC research cited by Cui remains unpublished in verifiable form. Until it is, the eleventh-place ranking remains a claim, not a fact.