New Formula Needed for Focus Industries 中国需要找到支持重点产业发展的新路

By newsdoug on May 30, 2012

China cabinet approves blueprint for key sectors I’ll start off this Thursday with a word of advice to Beijing, which has just approved a plan to support 7 key growth industries: Find a new formula to implement your policies. The blueprint just passed by China’s cabinet is rather straightforward, containing the names of many industries that are already the recipients of strong state support, including alternate energy, new energy vehicles, environmental protection and new IT services like cloud computing. (English article) Perhaps not coincidentally, China approved the plan the same day the US announced preliminary anti-dumping tariffs for Chinese-made wind towers, one of the main components of producing wind energy (English article), and the same week that foreign media reported the European Union may soon launch a formal probe into unfair state support for Chinese telecoms equipment giants Huawei and ZTE (HKEx: 763 Shenzhen: 000063). (English article) Economic slowdowns like the ones being felt in the US and Europe are famous for producing this kind of protectionism, as governments seek to assist their own struggling domestic industries to boost their local economies during a downturn. But perhaps China should stop accusing the West of protectionism so much and consider that perhaps some of the growing number of similar allegations of unfair state support against it may actually have some truth to them. Just yesterday I wrote about reports that Beijing will give strong support in the form of new subsidies for its electric car and bus programs, which could easily result in similar accusations if companies like BYD (HKEx: 1211; Shenzhen: 002594) ever manage to actually export their products. (previous post) The country is also providing aggressive subsidies in the emerging cloud computing services sector that, again, are likely to produce similar accusations if China ever tries to export any of those products or services. It’s perfectly understandable that Beijing wants to promote many cutting-edge industries, and indeed many other countries have similar goals. What China needs to change, however, is its older habit of giving those industries free money, a policy that’s a relic of an earlier era when everything was state-owned. Such policies have become quite outdated in the current move to a market economy, and China needs to find its own new blueprint that doesn’t rely on direct handouts to help develop these sectors.

Bottom line: China’s latest plan to support 7 key industries shows Beijing still relies on state subsidies to support emerging sectors, a policy it needs to end to avert unfair trade claims.

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