Analysis: Subsidies and overcapacity alone cannot explain China’s global economic expansion

For China, market conquest is treated not as the reward of success but as its precondition, writes Borislav Sretkov. Over the past two years, the world has witnessed a powerful Chinese export surge. China has established global leadership in electric vehicles, batteries, solar panels, industrial robots, mature-node chips, high-speed trains, steel, and shipbuilding, overtaking many Western competitors. The conventional explanation for this expansion is that China heavily subsidizes these industries and creates excess domestic capacity. Household consumption remains weak (39.9% of GDP in 2024), and the managed currency allows firms to dump surplus production at artificially low prices. Data from the OECD and IMF support this view: the OECD’s Magic Database of Industrial Subsidies found China ranks first in state support, with subsidies accounting for roughly 60% of its increased international market presence. Between 2008 and 2024, Chinese subsidies averaged 1.3% of annual sales—three to eight times higher than comparable firms elsewhere. The IMF estimated Chinese industrial subsidies at 4% of GDP, twice the European level, with the auto sector alone receiving support equivalent to 4.6% of turnover versus 0.4% in Western Europe. Shipbuilding, chemicals, and green energy also receive substantial subsidies. Yet these figures are insufficient. All major economies subsidize strategic industries, and the U.S. provides the largest absolute support for advanced semiconductors. Chinese subsidies take direct and indirect forms—preferential loans, regulatory forbearance, and tax relief—but the bulk of cheap credit flows to state-owned enterprises. With over 60 million firms in China, most are private SMEs, complicating the picture. Five-year Libor sits around 3.5%, while government bonds yield 1.7–2.2%. State firms pay roughly 3%, not dramatically below-market rates relative to government borrowing costs. Official data show subsidies for new technology firms have decreased since 2020, even as provincial governments face debt exceeding $11 trillion. Beijing has centralized technology subsidies to curb wasteful competition. Western analyses also fail to explain China’s current-account surplus, which remains strongly positive despite a property and construction crisis. The $1.2 trillion goods surplus (2023) included a $238 billion deficit in services and $199 billion spent by Chinese tourists abroad. The residual is recycled through equity issuance by listed Chinese firms, especially on the Hong Kong exchange, where Chinese companies accounted for over 90% of IPOs last year. Market capitalizations dwarf subsidy figures: CATL, the world’s leading battery maker, is valued at $271 billion; BYD at $130 billion. China’s industrial policy is coherent and long-term, concentrating capital, talent, and institutional effort on selected sectors. Competitiveness stems from a deep manufacturing base (29–32% of GDP vs. 18% in the EU and 16% in India), dense domestic supply chains, ruthless internal competition, scale economies, and learning-by-doing. Chinese strategists follow Michael Porter’s Competitive Strategy framework, executing every spoke with consistency. Human capital is decisive: China graduates 12.5 million students annually, including 3.6 million in STEM and 1.3 million engineers, supplemented by 450,000 studying abroad. R&D spending has grown at over 10% annually since 2020, reaching 3.9 trillion yuan last year—second only to the U.S. in absolute terms and first in scientific personnel. On the product side, Chinese firms recruit top European design talent and absorb foreign technology through legitimate and less transparent channels. They employ Porter’s three generic strategies: cost leadership through scale and cost control; differentiation via innovation and unique products like high-speed trains and humanoid robots; and focus on selected technological and market targets. Internal competition is fierce: electric-vehicle makers dropped from 487 to 40 between 2018–2023, while smartphone models fell from 4,745 in 2011 to 764 in 2018. Survivors emerge battle-hardened and attack global markets. Industrial clusters compress time and cost. In Chongqing, a motorcycle ecosystem of 50 assemblers and 400 suppliers within 40 km allows prototype validation in days. Around Shanghai, Tesla’s Gigafactory relies on a Chinese supply web delivering 95% of components within four hours, employing over 20,000 Chinese workers. BYD has already overtaken Tesla in worldwide volume and produces vehicles at half the cost of many Western rivals. China’s strategy is organized in concentric circles: domestic provinces, neighboring states, East Asia, and the rest of the world. After 2018, when the U.S. imposed trade restrictions, China accelerated displacement of Japanese, German, British, and American products both at home and in third markets. Exports surged into Russia, Vietnam, Mexico, Thailand, Indonesia, Saudi Arabia, the Philippines, Brazil, Kazakhstan, and Turkey. In 2025, Chinese FDI into Europe and the UK reached €16.8 billion—67% higher than the previous year—with greenfield projects and acquisitions surging. Classic Porter entry tactics—internal development, low-price penetration, superior or niche products, and acquisition of distressed Western firms (e.g., Geely-Volvo)—are systematically applied. Chinese planners invest ahead of domestic demand, treating global demand as unbounded. Surplus capacity is an instrument for market share capture, setting standards, and locking foreign economies into Chinese supply chains. Future waves will be powered by artificial intelligence and robotics, further compressing costs and tightening control over global manufacturing. The underlying premise is captured in Huawei’s name: ‘Hua’ means China; ‘Wei’ means able. China is competitive because it has built institutional capacity—strategic planning, human capital, industrial ecosystems, financial recycling mechanisms, and political focus—to convert ambition into sustained advantage. Western complaints about subsidies and overcapacity address symptoms but do not explain deeper sources of strength or the scale of adjustment other industrial economies will face as these strengths expand globally.