China's enormous subsidies come from trading profits. US and European subsidies come from taxpayers.

Summary

This 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

00:00

📊 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.

05:02

💰 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.

10:04

🚄 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.

Keywords

💡Government Subsidies

Government subsidies refer to financial assistance provided by governments to support specific industries or companies. In the script, the discussion focuses on how China extensively uses subsidies to boost its industries like electric vehicles, solar panels, and batteries. The video contrasts this with Western governments, which also provide subsidies but often justify them differently. The theme revolves around how these subsidies influence global competition and economic policy.

💡Chinese Industrial Policy

Chinese industrial policy refers to the strategic use of government resources to develop and expand key industries within China. The script highlights how China’s government provides extensive support to its industries, enabling them to outcompete Western companies. The policy is a central theme as it showcases how China reinvests its profits into these industries, leading to their rapid growth and dominance.

💡Western Criticism

Western criticism in the script refers to the common complaints from Western governments and companies about China's economic practices, particularly its use of subsidies. The script explores how these criticisms are often used to justify similar subsidies in the West. The theme is centered around the hypocrisy and self-interest behind these criticisms, suggesting that Western governments are not against subsidies but want to compete on similar terms.

💡Emerging Market Countries

Emerging market countries are nations with economies that are in the process of rapid growth and industrialization. The script mentions how these countries struggle to compete with China’s low costs and operating efficiencies, largely due to the extensive government support that Chinese industries receive. This concept is crucial in understanding the global impact of China’s industrial policy.

💡Think Tanks

Think tanks are research organizations that produce studies and reports to influence public policy. In the script, think tanks like the Keel Institute and CSIS are mentioned as being funded by governments and large corporations to produce research that supports more subsidies for Western industries. The video suggests that these reports are not neutral but are crafted to serve the interests of their sponsors, reflecting the complex interplay between policy-making and corporate interests.

💡Subsidy Comparison

Subsidy comparison refers to the analysis of how different countries, particularly China and the United States, use government subsidies to support their industries. The script contrasts the scale and sources of subsidies in China with those in Western countries, arguing that China’s approach is more effective due to its use of trade profits rather than taxpayer money. This comparison is central to the video’s argument about the effectiveness and fairness of industrial policies.

💡Economic Efficiency

Economic efficiency in the context of the script refers to how well countries utilize resources to achieve growth in their industries. The video argues that China’s subsidies are more efficiently used because they are funded by profits from global trade, whereas Western subsidies often rely on borrowing and taxpayer money. This concept underscores the differences in how economic policies are implemented and their long-term sustainability.

💡Sovereign Wealth Funds

Sovereign wealth funds are state-owned investment funds that are used to manage the national savings and invest in various assets. The script mentions how China and other countries use these funds to provide equity financing to companies. The video compares this with similar practices in the United States, where large public pension funds like CalPERS are used to invest in local industries, emphasizing the role of government-managed funds in industrial policy.

💡Interest Rates

Interest rates in the script refer to the cost of borrowing money, particularly in the context of Chinese companies like SMIC receiving loans at lower rates than Western companies. The script argues that this is a sign of the company’s creditworthiness and not an unfair advantage, as Western critics suggest. The concept is crucial for understanding the financial dynamics that allow Chinese companies to thrive and the challenges faced by Western policymakers in responding to this.

💡Global Trade Deficits

Global trade deficits refer to the situation where a country imports more goods and services than it exports. The script highlights how countries like the US, Japan, and France run large trade deficits, which affects their ability to fund industrial policies. The video contrasts this with China’s trade surplus, which allows it to reinvest profits into its industries, emphasizing the importance of trade balances in shaping economic strategies.

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