Chinese exports reached nearly $4 trillion in 2023, raising concerns among policymakers outside China about the country’s growing global market dominance. This expansion has sparked debate over the role of government subsidies in supporting Chinese industries, with tensions emerging between Chinese economists and international bodies such as the Organisation for Economic Co-operation and Development (OECD).

The OECD reported earlier this year that China’s subsidies in 2024 were three to eight times greater than those of wealthier countries, attributing up to 60 percent of China’s gains in global market share between 2005 and 2023 to these state supports. This claim echoes longstanding criticisms by the United States and European nations accusing China of employing unfair tactics to undercut foreign competitors.

However, some Chinese economists, including Kai Guo, challenge this view, suggesting subsidies are no longer the primary driver of Chinese firms’ competitiveness. They argue the OECD overestimates the impact by misinterpreting cheap loans as direct subsidies. Supporting this skepticism, a World Economic Forum paper found limited evidence of widespread below-market financing by Chinese authorities.

Adding complexity to the discussion, a recent International Monetary Fund (IMF) paper offers a different perspective. Acknowledging the difficulties in measuring subsidies due to inconsistent data and definitions, the IMF focused exclusively on direct grants and aid, excluding cheap loans. It found that Chinese subsidies accounted for over 2.5 percent of value added in 2023, up from around 1 percent in 2015. Although numerically modest, this increase is significant given the thin profit margins in many industries.

The IMF paper also highlighted that China is not unique in its use of subsidies. Between 2015 and 2023, subsidies accounted for 1.3 percent of value added in the U.S., and between 0.6 and 1 percent in Canada and the European Union. This has led some observers to question the consistency of U.S. criticisms of Chinese state intervention.

Importantly, the nature of subsidies differs across regions. China directs approximately 3 percent of value added subsidies to strategic sectors such as semiconductors and technology hardware, sectors that have fueled its export growth. In contrast, subsidies in Chinese non-strategic sectors like agriculture stand at around 1 percent. In the U.S., the pattern is reversed, with around 2 percent in non-strategic sectors and 0.5 percent in strategic ones, while the EU’s subsidies for strategic industries are even lower.

Experts note that China’s approach often integrates subsidies with complementary policies, such as worker training programs and infrastructure investments like high-speed electricity transmission, which are critical to supporting emerging technologies including green energy and artificial intelligence. By contrast, critics argue that in countries like the U.S., efforts to support strategic industries have been fragmented, limited by underinvestment in complementary areas and political opposition to some green energy initiatives.

International policymakers face challenges in responding to these dynamics. The head of the IMF, Kristalina Georgieva, has urged China to rebalance its economy by boosting domestic demand to slow export growth, warning that failure to do so could threaten the global rules-based trading system if other countries impose retaliatory tariffs. Emerging market officials, including Turkey’s finance minister Mehmet Şimşek, similarly view China’s trade practices as a significant risk to global economic stability.

Despite these concerns, Beijing shows little indication of altering its current policies, while the U.S. remains committed to maintaining tariffs and other protective measures. The IMF projects that if Chinese subsidy trends persist, the country’s electronics exports could increase by about 20 percent over the long term.

Amid this environment, experts suggest that governments beyond China need to reassess their industrial strategies. Simply relying on tariffs may be insufficient without coordinated investment in science, infrastructure, and workforce development. Some argue that continued support for politically entrenched but less productive sectors, such as certain types of agriculture, at the expense of future-oriented industries could undermine competitiveness. The evolving situation underscores the complexities of global trade relations in a period described by some analysts as marked by intense mercantilism.