ISSN 2330-717X

The Real Victims Of China’s Subsidies – Analysis

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By Kristen Hopewell*

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Beijing’s trade practices have come under intense scrutiny amid its ongoing competition with Washington. Yet with the United States and other rich countries dominating the debate, the effects of China’s trade policies on poorer countries have been largely ignored.

The United States has complained about China’s use of subsidies and other protectionist trade measures to promote its advanced manufacturing and other high-tech industries. But Beijing is also making use of heavy subsidies and trade-distorting policies in agriculture and fisheries — two sectors of critical importance to the developing world.

Agricultural subsidies in richer countries give their farmers an unfair advantage in global markets, depressing prices and undermining the livelihoods of farmers in the developing world. Historically, the United States and the European Union were the chief culprits but China’s agricultural subsidies now vastly exceed those of the traditional subsidisers. In 2016, China provided an estimated US$212 billion in subsidies and other forms of trade-distorting support to its farmers, significantly more than the European Union (US$100 billion) and the United States (US$33 billion).

Cotton exports provide a vital source of employment, income and government revenue in sub-Saharan Africa, where the livelihood of 15 million people depends directly on the crop. In Burkina Faso, which has a per capita national income of just US$790 per year, cotton represents nearly 60 per cent of its export revenue. African cotton producers are among the world’s most competitive but they face lower prices and unfair competition due to subsidies in richer countries.

China has now surpassed the United States as the world’s biggest cotton subsidiser. Over the past decade, China has provided US$41 billion in cotton subsidies — nearly six times more than the US$7 billion provided by the United States. China alone accounts for nearly three-quarters of all cotton subsidies worldwide.

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Though China is relatively inefficient at producing cotton — with production costs roughly four times as much as those in some African countries — subsidies have made it one of the world’s largest cotton producers. China’s cotton sector has grown at the expense of farmers elsewhere, many of whom toil in conditions of acute poverty.

As more than half of global textile production is located in China, it is the world’s largest market for cotton, leaving cotton farmers around the world at the mercy of Chinese policies. China’s subsidies artificially boost its domestic cotton production, displacing imports and lowering global prices. China also imposes tariffs as high as 40 per cent to further restrict cotton imports. China’s heavy subsidies and import barriers have reduced the incomes of cotton farmers in Africa and around the world, causing significant economic pain for many developing countries.

Fisheries subsidies have fuelled the overfishing of global fish stocks, contributing to a world fisheries crisis. Today, 90 per cent of global fish stocks are already fully exploited and almost a third are being fished at a biologically unsustainable level. Developing countries that rely on fishing for food supply and livelihoods are most vulnerable to the effects of fish stock depletion. Subsidies enable richer countries with large industrial fishing fleets to exploit resources far beyond their territorial waters — including off the coasts of Africa, Central and South America, and the South Pacific — at the expense of local fishing communities.

China has emerged as the world’s biggest fisheries subsidiser with the largest and furthest-ranging industrial fishing fleet. China spends more than US$6 billion annually on harmful fisheries subsidies, nearly three times more than the second-largest subsidiser, the European Union.

With its fish stocks severely depleted due to overfishing, China has used heavy subsidies — for fuel, shipbuilding and processing — to enable its fleet to expand into international waters. China now has nearly 2500 vessels engaged in distant water fishing. In contrast, the United States, the world’s third-largest fishing country, has only 225 vessels doing so.

China’s heavily-subsidised fleet now accounts for 42 per cent of global fishing activity — outstripping the next 10 biggest countries combinedFor many developing countries, the effects have been devastating. In West Africa, which has some of the world’s richest fishing grounds, locals fishing from hand-hewn canoes are competing against Chinese industrial ‘mega-trawlers’ with mile-long nets that scoop up everything from the seabed to the surface. In a region that is already suffering from high levels of hunger and food insecurity, fish stocks are rapidly being depleted, resulting in plummeting incomes for local fisherfolk and reduced domestic food supply.

Chinese President Xi Jinping has sought to portray China as a champion of global development, pursuing a ‘win-win’ form of economic globalisation that benefits all countries. But for trade to truly benefit everyone, China must be held accountable for the effects of its trade policies on poorer countries and reign in its harmful subsidies.

*About the author: Kristen Hopewell is Canada Research Chair in Global Policy at the University of British Columbia and the author of Clash of Powers: US-China Rivalry in Global Trade Governance

Source: This article was published by East Asia Forum

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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