China's enormous subsidies come from trading profits. US and European subsidies come from taxpayers.
Summary
TLDRThis transcript discusses the competitive dynamics between Western and Chinese companies, highlighting how China's government subsidies give their industries a significant advantage. The speaker critiques Western governments and think tanks for focusing on Chinese subsidies while also heavily subsidizing their own industries. The key point is that Chinese subsidies are funded by profits from global trade, whereas Western subsidies rely on taxpayer money or borrowing. The speaker argues that reports on this issue are often influenced by the interests of large companies seeking more subsidies for themselves.
Takeaways
- 💰 China provides substantial government assistance to its industrial sectors, making Western businesses struggle to compete.
- 🌍 Emerging Market countries find it difficult to match China's low costs and operational efficiencies.
- 🇺🇸 Western politicians and officials are not opposed to subsidies and often boast about public money given to various industries.
- 📊 Think tanks conducting such research are often funded by governments and large companies to justify more subsidies and public spending.
- 🔄 China's subsidies are funded by trading profits, while Western subsidies come from taxpayers or borrowing.
- 📈 China's reinvestment of profits into industries leads to faster growth and competitive advantages.
- 🏭 Chinese companies receive various forms of subsidies, including cheap loans, tax breaks, cheap land, and access to government-backed venture capital funds.
- 🇺🇸 Similar investment strategies exist in Western countries, such as public pension funds and government-backed investment funds.
- 💸 US subsidies, like those from the Chips Act and the Inflation Reduction Act, are substantial but still less compared to China's spending.
- 🔍 The article criticizes the way Chinese subsidies are reported, suggesting that Western subsidies are often overlooked or downplayed in comparison.
Q & A
What is the main thesis of the Wall Street Journal article being summarized?
-The main thesis is that Chinese government assistance to its industrial sectors puts Western businesses at a disadvantage, leading to China outclassing them in industries like electric vehicles, solar panels, and batteries.
Why do the speaker suggest that think tanks publish research critical of Chinese subsidies?
-The speaker suggests that think tanks publish such research to justify more subsidies for Western industries. These think tanks are often funded by governments and large companies that benefit from these subsidies.
How does the speaker compare the source of subsidies in China versus the West?
-The speaker points out that Chinese subsidies come from trading profits, whereas subsidies in the West come from taxpayers or borrowed money, which is a significant difference in how these subsidies are funded.
What evidence does the speaker provide to argue that Chinese subsidies are effective?
-The speaker argues that Chinese subsidies are effective because they are reinvested in industries that continue to grow, allowing Chinese companies to dominate global markets.
What is the speaker's perspective on the effectiveness of Chinese companies like CATL receiving subsidies?
-The speaker believes that Chinese companies like CATL receiving subsidies is not unusual and compares it to similar practices in the United States, where companies also receive various incentives to set up factories in different states.
How does the speaker challenge the criticism of Chinese government-backed investment funds?
-The speaker challenges the criticism by pointing out that many Western countries also have large public pension funds and sovereign wealth funds that operate similarly, providing equity financing to local industries.
What does the speaker say about the subsidies received by Chinese companies compared to Western subsidies?
-The speaker argues that the subsidies received by Chinese companies are not extraordinary compared to Western subsidies, providing examples like Amtrak's federal grants, which far exceed what Chinese companies receive.
How does the speaker address the issue of below-market borrowing rates for Chinese companies like SMIC?
-The speaker explains that lower borrowing rates for companies like SMIC are a sign of creditworthiness, not a problem, and draws parallels to similar practices by major corporations like Apple.
Why does the speaker believe the Wall Street Journal article is not written for investors or business managers?
-The speaker believes the article is not intended for investors or business managers but rather for companies in North America and Europe who want subsidies and need to influence lawmakers to secure these funds.
What does the speaker imply about the relationship between companies, think tanks, and lawmakers in the West?
-The speaker implies that there is a cycle where companies fund think tanks to produce research that justifies subsidies, which lawmakers then use to provide those subsidies, ultimately benefiting the companies and politicians.
Outlines
📊 Western Frustration with Chinese Industrial Subsidies
This paragraph highlights complaints from Western governments and large companies about China's extensive government assistance to its industrial sectors. The Western narrative suggests that these subsidies give Chinese firms a competitive edge in industries like electric vehicles and solar panels, making it difficult for Western companies and emerging markets to compete. The paragraph also critiques the hypocrisy of Western governments, who themselves provide significant subsidies to their own industries, and argues that think tanks funded by governments and corporations produce research to justify these subsidies.
💰 A Comparative Look at Public Investment Funds
This paragraph compares Chinese government-backed investment funds to similar funds in the United States, like California’s CalPERS and Texas' public school teachers' fund. It argues that while China channels billions into its industries through these funds, the U.S. and other Western countries do the same. The paragraph also notes that while the U.S. allocates billions through initiatives like the CHIPS Act, China's scale of investment is much larger, highlighting the disparity in industrial support between the two nations.
🚄 China's Industrial Strengths vs. Western Failures
The focus here is on specific Chinese companies that receive subsidies, such as CATL, the world’s largest battery maker, and SMIC, a semiconductor company. The paragraph argues that the amount of subsidies these companies receive, while significant, is justified by their massive revenues and profits. It also compares Chinese subsidies to Western practices, like the U.S. federal grants to Amtrak, and criticizes the Western media for highlighting Chinese subsidies without acknowledging similar or even larger subsidies at home. The argument is that these reports are often biased and serve Western corporate interests.
Mindmap
Keywords
💡Government Subsidies
💡Chinese Industrial Policy
💡Western Criticism
💡Emerging Market Countries
💡Think Tanks
💡Subsidy Comparison
💡Economic Efficiency
💡Sovereign Wealth Funds
💡Interest Rates
💡Global Trade Deficits
Highlights
Western governments and companies complain about China's government assistance to its industrial sectors, which makes it hard for them to compete in sectors like electric vehicles and solar panels.
Western governments also subsidize their industries, but their funds come from taxpayers or borrowing, unlike China's profits from global trade.
Chinese subsidies are reinvested in their industries, leading to rapid growth and global dominance.
CATL, the world's largest battery maker, received significant subsidies from the Chinese government, which is common practice in the US as well.
Chinese companies benefit from various subsidies, including cheap loans, tax breaks, and access to government-controlled venture capital funds.
The US, Japan, and France spend a lot on industrial policy, but they rely on taxpayers, unlike China, which reinvests profits from trade.
Chinese railway company CRRC received relatively small subsidies compared to the massive grants given to Amtrak in the US.
Chinese semiconductor company SMIC borrows at below-market rates, which some view as a sign of risk, but it's actually a sign of creditworthiness.
The US aims to rebuild its semiconductor industry, but it faces challenges in competing with China due to higher borrowing costs.
Think tanks and public policy institutes are often funded by governments and companies to produce research that supports more subsidies and taxpayer spending.
Reports like this are not intended for investors or business managers but are designed to influence lawmakers in North America and Europe to justify subsidies.
Western companies use these reports to lobby for subsidies, which they then return to officials in the form of campaign contributions or jobs.
The article criticizes the cycle of subsidies, campaign contributions, and influence in Western political and economic systems.
Chinese companies' ability to reinvest profits into their industries gives them a competitive edge over Western companies.
The analysis emphasizes the differences in how Chinese and Western companies are funded and the implications for global competition.
Transcripts
good
morning this paragraph in the Wall
Street Journal summarizes common
complaints that we hear from Western
governments and large Western companies
who are trying to compete against
Chinese firms China provides lots of
government assistance to their
industrial sectors as a result Western
businesses are outclassed in electric
vehicles solar panels batteries and
everything in between and Emerging
Market countries cannot compete against
China's low costs and operating
efficiencies that's the thesis and it is
popular and when we see articles and
research like this who is it written for
and who is it written by because
politicians and officials in North
America and in Europe are not against
subsidies to help our own Industries
they brag about how much public money
they're giving to auto companies or to
semiconductor companies they boasted
about all the money they pumped into the
banks during the great financial crisis
so let's understand that when these
think tanks put together this research
and some of them are quoted in this
article here the Keel Institute the csis
there are think tanks that are paid by
governments and by some of the biggest
companies in the world to do this
research so that it can be used to
justify more subsidies more taxpayer
money being spent at home and what
they're saying here is that China is
giving a lot more money than we are so
we need to do the same that's how they
get paid and that's how our politicians
get elected by giving money away to
companies that in turn contribute to
their campaigns that's our system and as
we go through the data it's important to
keep in mind two important things the
Chinese are able to subsidize their
Industries in ways that we cannot
because they're making a lot more money
Chinese subsidies to their Industries
come from Trading profits earned
throughout the world from the United
States and Europe in particular
subsidies to American and European
Industries need to come from taxpayers
or from borrowing loans which will be
repaid by our taxpayers that's a crucial
difference that China is playing with
house money reinvesting profits we're
not the second thing to remember is that
it's working if the Chinese were wasting
their money were levels of Chinese Mal
investment very high it would matter
never interrupt an adversary when he's
making a mistake would be the thinking
in that case but they're not wasting
money they're reinvesting in their own
Industries which grow faster as a result
and they're taking over
hours and there is another issue which
is that as we go through these
criticisms carefully they don't measure
up very well the Wall Street Journal
reports that hundreds of Chinese
companies receive subsidies from the
Chinese government the largest recipient
for last year 2023 was catl they are the
world's largest battery maker catl
batteries are in millions of electric
vehicles they received 5.7 billion un
which is about $790 million in subsidies
that seems like a huge number but in
2023 chl's revenues were $ 55
billion in remond B cat's profits were
44 billion un that's profits catl is a
Chinese company and they have to pay
taxes on that 44 billion R&B in profit
and the Chinese government handed them
5.7 billion REM andb in subsidies that
would not be considered unusual at all
in the United States for example where
companies put factories based on how
much local tax incentives they can get
by moving to Alabama say instead of
Georgia that's done all the time
here are the types of subsidies that
Chinese companies get cheap loans from
Chinese Banks tax breaks cheap land from
local officials to set up factories
cheap steel cheap raw materials
generally you should say cheap
electricity and access to venture
capital funds that have government funds
in them the only thing that seems
uniquely advantageous to non-chinese
would be the government investment funds
they explored a bit here Chinese
government controlled funds to provide
Equity Finance they found 2,000 funds in
China and some of them have billions of
dollars to lend but this is actually a
feature of our economic systems too for
example cowers is the investment arm of
the state of California's Municipal
workers just one state and they have
over half a trillion dollar under
management and lots of these Investments
are directed at private companies inside
the State of California the cpers funds
according to this report have
$467 billion under management and
California has another giant fund for
their Public School teachers calsters
there's $350 billion in that one the
government investment fund for school
teachers in Texas has $187
billion most countries have public
Pension funds or Sovereign wealth funds
that serve the same purpose these are
investment pools run by governments
usually with two explicit directives
make investments in local Industries and
companies and make profits which can be
used later to pay benefits Chinese
government-backed investment funds
Channel billions of dollars in equity
financing to companies that need Capital
yes and so do ours the chips act in the
United States set aside $ 53 billion all
of this was Borrowed by the way and the
inflation reduction act promises lots
more than that it adds up to a lot but
compared to China not really it says
here China's in a different League 250
billion in 2019 which is around 1.7% of
GDP South Korea is half as much us a
quarter as much now the US Japan and
France all run large trade deficits and
all that spending on Industrial policy
comes from taxpayers all of
it here are some other examples that
they found the biggest recipients of
Chinese subsidies uh Petrina the biggest
Chinese oil company got $343
million crrc makes railroad equipment
they got 214
million that doesn't sound like a lot of
money to me honestly Amtrak is a US
Railway their federal grants grants not
loans were $2.4 billion which is 10
times what the Chinese railroad
equipment company got stands the reason
that China which hauls in millions of
tons a day of raw materials that need to
be moved from Port to factory then
finished products moveed from factories
back to the ports would need the best
railroads to make all that go having the
best Supply chains need best-in-class
Logistics the state of California spent
billions of tax dollars for a railroad
and we don't even have a track yet so I
don't see the purpose of pointing out
out China's subsidies to their rail
system except to emphasize our own
failures in that
respect I got a big problem with this
too smic is a huge company here in China
they make semiconductor chips for Huawei
and lots of other companies and they
were singled out in this report because
they enjoy below Market borrowing rates
in
2023 smic paid an average of 2.1% on
long-term borrowings which is lower than
the 5-year lending Benchmark established
by the Central Bank the European
commission seized on this point and says
that some firms are using new loans to
repay old debts which in most economies
would be the sign of a risky borrower
that is completely false it's the sign
of a creditworthy borrower that they are
offered lower lending terms than before
so they take it and refinance at lower
rates that's literally what every single
corporate treas in the whole world hopes
to do what every single homeowner with a
mortgage hopes to do when interest rates
fall who wrote this I seriously want to
know who works in or for the European
Union who doesn't know what an interest
rate is do they actually think that
Banks want to lose money by lending at
lower rates instead of higher ones to
risky
borrowers anyway smic is one of China's
most important companies and it's
enormous it should not be surprising
that they can borrow at lower rates in
other companies this is a prospectus
from Apple it's a few years old from
2018 and it's for7 billion in new
borrowing they're borrowing a billion
dollars at 17 for four years 750 million
at8 2 billion at 205 on down finally
it's 1.5 billion at 295 for 30 years
Apple Computers borrowing on this tranch
of bonds works out to a duration of 12.4
years at a volume weighted yield of
2.2% smic is at 2.1% Apple's at
2.2% these data and analyses are put
together by think tanks and public
policy institutes same thing so remember
who is paying them and why smic is a
Foundry that makes semiconductors here
in China and we want to rebuild that
industry in the United States but that
means that our new companies need to be
able to borrow Capital the same way
Apple does and the same way smic does
with a two- handle but that's a serious
problem for our officials and policy
makers because smic can borrow it rates
below even the United States
government we pay a rate twice as high
for borrowed Capital as us taxpayers
financing our government operations than
smic does so our lawmakers who hope to
to build out a semiconductor industry in
the United States they need to subsidize
loans to our chip makers in this case
and to lose money on those loans
deliberately lose money the think tanks
and institutes are not making the
argument here that we shouldn't do it
because it's a bad deal for us taxpayers
they're saying the opposite because
that's how they're incentivized that's
why our biggest companies give them
millions of dollars a year it would
obviously be too self-interest Ed for a
billion doll us company to write an
article in the Wall Street Journal that
asks for billions of dollars in low
interest interest loans or free money
from us taxpayers so they pay the csis
to do it these reports are not written
to inform because the information isn't
very solid the reports are not intended
to be used by investors or by business
managers deciding where to buy products
from or Global executives decid where
the next Factory should go all the
people Wall Street Journal pretends to
be a newspaper for this article is not
for them it's not for
us it's for companies in North America
and in Europe who want subsidies
themselves and they need lawmakers in
North America and in Europe to have a
reason to give them the money companies
toss some of that money back to those
officials and bureaucrats in the form of
campaign contributions or jobs and
that's the cycle
this is Sichuan Province the
countryside be good
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