Industrial Subsidies along Domestic Value Chains and their Impacts on China’s Exports

Hongyong Zhang, Wenyin Cheng, David Tao Liang and Bo Meng

No 937, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Industrial subsidies are at the center of the recent political and economic debate. This paper examines the impacts of subsidies along domestic value chains on the export performance of Chinese firms. Using firm-level subsidy data and inter-provincial input-output tables with firm ownerships, we measure direct subsidies and indirect subsidies in upstream industries. Our findings reveal several vital points: (1) Direct subsidies significantly enhance Chinese firms’ export participation and volume. These subsidies are positively associated with firm investment and R&D expenditure. (2) Surprisingly, upstream indirect subsidies—particularly those from 1st tier upstream industries—have even larger effects on Chinese exports than direct subsidies. These upstream subsidies contribute significantly to export growth. (3) Both domestic firms and foreign-invested enterprises benefit from direct subsidies, but the effect of upstream subsidies varies by firm ownership. (4) Both direct and indirect subsidies are associated with higher export prices and product quality, leading to a lower quality-adjusted price. These export growth and quality upgrading are driven by direct subsidies through increased investment and R&D, and indirect subsidies through intermediate inputs. These results suggest that government support may promote quality upgrading and enhance the global competitiveness of Chinese exports. This paper contributes to the ongoing debate on government subsidy and industrial policies by shedding light on the intricate relationship between subsidies and exports in the context of evolving global value chains.

Keywords: Industrial; subsidies|Export|Global; value; chains (search for similar items in EconPapers)
JEL-codes: F14 L52 R15 (search for similar items in EconPapers)
Date: 2024-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in IDE Discussion Paper = IDE Discussion Paper, No.937. 2024-05

Downloads: (external link)
https://ir.ide.go.jp/record/2000990/files/IDP000937_001.pdf First version, 2024 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jet:dpaper:dpaper937

Ordering information: This working paper can be ordered from
Publication Office, IDE 3-2-2 Wakaba, Mihama-ku, Chiba-shi, Chiba 261-8545 JAPAN
http://www.ide.go.jp/English/Publish/Order

Access Statistics for this paper

More papers in IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO) Contact information at EDIRC.
Bibliographic data for series maintained by Michitaka Imamitsu ().