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China's World Trade Compliance

BY Usha C. V. Haley, Ph.D.
November 06, 2006

Thank you, members of the Commission, for the honor of addressing such a distinguished and thoughtful panel. Industrial subsidies in China derive from governmental dominance of the economy and from various factors including the central, provincial and municipal governments' strategic goals, patronage, and corruption. The subsidies include direct and indirect components that affect both the top and bottom lines of industrial operations. My statement stems from research that I have conducted over the last 7 years on business in China, some of which has been published in my book, The Chinese Tao of Business: the Logic of Successful Business Strategy (John Wiley & Sons). Answers to specific concerns follow.

In what form and in what industries do subsidies exist in China?

State subsidies flow into State-Owned Enterprises (SOEs) although some well-connected private firms also benefit from indirect subsidies such as Special Market Information. In 2002, the state controlled half the industrial output and SOEs still account for 35% of urban employment. Almost all of China's heavy industry and much of its technology lies in governmental hands. The government controls about a third of China's economy through SOEs in key sectors such as defense and utilities. The State Owned Assets Supervision and Administration Committee (SASAC) directly manages the top 190 or so SOEs, the biggest of which have international stock-market listings.

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