• bobalot@lemmy.world
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    14 days ago

    China has more than direct subsidies to it’s manufacturing sector.

    • It has a managed currency which transfers income from importers (generally households) to exporters.

    • Low interest rates for heavy industries (to the point it was negative real interest for years) which is a transfer from households to the industrial sector.

    • Weak labour laws which transfers income from workers to businesses.

    • Etc.

    The cumulative effect is a net transfer of income from the household sector to the export sector (this needs to be coupled with government policies which force these companies to invest in manufacturing capacity).

    If you look at China’s household share of income, it is one of the lowest of any industrial economy and extremely low historically.

    It’s household sector cannot consume what the country produces. It must export the surplus.

    It relies on trade partners who are willing to run deficits without China importing an equivalent amount of their goods (since their household sector does not have the ability to consume an equivalent amount).

    This particular approach is not unique to China. The Soviet Union, Japan, Korea, Taiwan, Germany, United States (prior to the great depression), Brazil (during the 1960s), etc. have all followed this approach to industrial development.

    It has been extremely successful but it is not sustainable. All the previous countries that used this model have run into issues that resulted in a crash (America with the great depression) or a long period of low growth (Japan) which rebalances the economy.