In China’s industrial hinterlands, state subsidies run deep and appetite for reform is low despite US demands
- In protracted US-China trade war talks, Washington has demanded that Beijing stop subsidising state-owned enterprises (SOEs)
- Deyang and Liuzhou, two cities reliant on SOE employment, highlight why fears of social unrest make the demands untenable for China’s authorities
Prospects of China and the US securing a deal to end the trade war are dwindling. This is the fourth in a series of long reads examining the elements of any deal that Beijing would be willing to agree to, those that are considered achievable in the long run, as well as the red lines, on which Beijing is unlikely to ever budge. Part four focuses on the complex issue of state subsidies for traditional industries.
In the protracted negotiations to end the US-China trade war, high on Washington’s list of demands has always been that Beijing remove state subsidies for its dominant state-owned enterprises.
In addition to more than 100 industrial conglomerates, China’s 55,000 other state-owned enterprises (SOEs) under local government control remain the backbone of many local economies.
Even as it tries to move up the industrial value chain, the employment and social stability brought by these companies – often in traditional sectors – means that scrapping subsidies is one issue on which China is unlikely to give much ground in talks with the United States.
This picture becomes clear on journeys into some of China’s manufacturing hinterlands, where state-owned industrial behemoths still dominate local economies.
Deyang, a city of 3.6 million people in Sichuan province, is home to one of China’s most infamous SOEs, China National Erzhong, a giant machinery manufacturer that became a poster child for the inefficiencies of the country’s bloated heavy industry sectors.