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The effects of Chinese subsidies on Germany

Client

Bavarian Industry Association (vbw—Vereinigung der Bayerischen Wirtschaft e. V.)

Year

2022


Available data suggest that Chinese companies enjoy an unfair competitive advantage abroad due to its government’s subsidies. The Vereinigung der Bayerischen Wirtschaft (Bavarian Business Association, vbw) asked Prognos to find out how Chinese companies are currently doing on the world market, how they will do so in the future, and how Chinese subsidies affect German companies.

Global competition in the field of German core technologies is distorted

The Chinese government has been supporting domestic companies for years with subsidies such as direct financial aid, tax breaks, favorable loans or state funds. The amount of these subsidies distort global competition. As a result, Chinese companies enjoy a competitive advantage on the world market.

This is particularly problematic for German companies who rely to a great extent on exports. Their products become less competitive, Germany as a business location is weakened.

To illustrate this, we examined three sectors: medical equipment, transformation and transmission equipment and integrated circuits . For each sector, we examined the potential effects of China’s so-called Made in China 2025 strategy (MIC 2025) on Germany.

Our calculation shows:

  • China’s ambitious MIC 2025 strategy has significant economic effects on Germany and Bavaria
  • although global market growth could slightly dampen the negative effects of Chinese subsidies, the MIC 2025 strategy is likely to lead to a shift on the global market in favor of Chinese companies
  • these effects could become substantial for Germany and Bavaria due to the size and dynamism of the Chinese economy
  • the potential positive effects of Chinese subsidies on German companies are small

Policy options on a European level

Our data show that China subsidizes its companies significantly more than its international competitors – especially in comparison to Germany and Europe. As a result, the companies do not compete on a level playing field. We see the following policy options on a European level:

  • further development of WTO rules and regulations, such as an expansion of the list of prohibited subsidies
  • taking WTO-compliant unilateral measures, such as to discriminate against subsidized companies on the EU market
  • forming international alliances and a common strategy for dealing with market-distorting practices
  • reducing economic dependence on China: countries in Asia, Latin America and Africa could be alternative trading partners

Links and downloads

On the website of the vbw you will find:

Download study (PDF, in German)

More information

Project team: Jakob Ambros, Dr Michael Böhmer, Philipp Kreuzer, Hannah Staab, Johann Weiß, Eva Willer

Last update: 12.1.2023

Do you have questions?

Your contact at Prognos

Dr Michael Böhmer

Chief Economist, Head of Corporate Services

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Johann Weiß

Senior Project Manager

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