How Governments Back the Largest Manufacturing Firms
Industrial subsidies
While subsidies can be helpful policy tools to address emergencies or market failures, they can also distort trade and competition depending on their design and target. The OECD is at the forefront of global efforts to identify, quantify, and analyse industrial subsidies and their impacts on markets.
New report
Government support has long been a central issue for trade but recently countries’ interest in subsidies, and industrial policies more broadly, has intensified. Yet evidence on the nature and scale of industrial subsidies and what they mean for global competition is scarce. This paper uses the recently created OECD MAGIC database to shed more light on the level and types of subsidies received by the largest companies operating globally across 14 key industrial sectors.
Key messages
State enterprises are not only relatively large recipients of government support, but they can also provide support. This is, for example, the case where state banks offer industrial companies loans at below-market terms and conditions, or where state utilities provide companies with energy inputs at below-market prices. This can in turn tilt the playing field downstream in favour of those companies that are able to benefit from the lower prices charged by certain state enterprises.
Government disclosure of subsidies is often partial and limited, if existent at all. This lack of transparency hinders global efforts to better discipline the most trade-distorting forms of support. It has also led the OECD to employ a granular firm-level approach to investigate the support that governments provide to major industrial groups. The resulting database offers a unique perspective on the scope and scale of industrial subsidies from the ground up.
Context
Solar and wind value chains have seen profound changes in the last two decades
China has come to dominate global value chains for solar modules and wind turbines, accounting globally for more than 80% of module production and more than 70% of production of key turbine components.
Industrial subsidies tend to favour certain sectors and companies
Sectors in which firms have obtained the most support relative to their size are the production of solar photovoltaic modules, semiconductors, and heavy industries such as aluminium smelting, shipbuilding, steelmaking, and cement. The analysis has also found enterprises with at least 25% government ownership to have received two to three times more support relative to their size than competitors with less government ownership. This increases to ten times more when looking only at government grants and below-market borrowings.
