The Center for Strategic and International Studies (CSIS) recently released a report saying that the Chinese government spends much more money on industrial policy than the U.S., even when being conservative on estimating Chinese spending.
A nonprofit agency founded in 1962, the CSIS is a policy research organization that focuses on national security issues.
Industrial policy was defined as any implicit or explicit state intervention aimed at reallocating resources to support particular firms or sectors to achieve policy objectives. The CSIS report said that China provided an estimated $63 billion in direct subsidies in 2019, which went primarily to firms in sectors like software, technology hardware, automobiles and semiconductors. The Chinese government has favored direct subsidies to certain firms and below-market credit to state-owned enterprises (SOE). The report said that SOEs have interest rates at least 1% lower than private firms. China provided at least $74 billion in below-market credit to SOEs in 2019.
In 2019, China spent at least 1.71 trillion yuan on industrial policy—the equivalent of $248 billion. This was about 1.73% of China’s GDP that year. To compare, the U.S. government spent $84 billion on industrial policy in 2019, which is 0.39% of its GDP. The CSIS report said that the U.S. placed second in estimated spending.
“No matter how one counts—in absolute terms or as a percent of GDP—China’s industrial policy spending far surpasses that of any other economy in the sample,” the CSIS report said.
In 2017, China accounted for 3.8% of global chip sales, which amounts to approximately $13 billion, a January report from the Semiconductor Industry Association (SIA) said. In 2020, that number rose to 9% and $39.8 billion. It is predicted that if this trajectory continues, China will account for 17.4% of sales in 2024, with $116 billion in revenue.
Democratic Congressman Donald Norcross—who represents the 1st District of New Jersey and sits on the House Armed Services Committee; the Education and Labor Committee; and the Committee on Science, Space and Technology—recently took to Twitter in support of the America COMPETES Act, which aims to reduce U.S. dependency on foreign semiconductor chips.
“About 90% of microchips are made outside the U.S.,” Norcross tweeted recently. “When they can't get here, we are stuck with inflation and supply chain bottlenecks. With the America COMPETES Act, we are going to make chips in America.”
The Register recently reported that the America COMPETES Act would allocate $50 billion to the U.S. semiconductor industry. Legislation would subsidize research and expansion in the semiconductor manufacturing industry to strengthen the supply chain and prevent any chip shortages in the future. There have been versions passed in the House and Senate, but they are now being tinkered with to resolve differences before sending it for approval from President Joe Biden.