The real victims of Chinese subsidies

Author: Kristen Hopewell, University of British Columbia

Beijing’s business practices have come under scrutiny in 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 also uses heavy subsidies and trade-distorting policies in agriculture and fisheries, two sectors of critical importance to the developing world.

Agricultural subsidies in rich countries give their farmers an unfair advantage in world markets, driving down prices and undermining the livelihoods of farmers in the developing world. Historically, the United States and the European Union were the main culprits, but China’s agricultural subsidies now far exceed those of traditional subsidies. In 2016, China provided about US$212 billion in subsidies and other trade-distorting support to its farmers, far more than the European Union (US$100 billion) and the United States (US$33 billion).

Cotton exports are a vital source of jobs, income and government revenue in sub-Saharan Africa, where the livelihoods of 15 million people depend directly on the crop. In Burkina Faso, which has a national per capita income of just $790 a year, cotton accounts for nearly 60% of its export earnings. African cotton producers are among the most competitive in the world, but they face lower prices and unfair competition due to subsidies from richer countries.

China has now overtaken the United States as the world’s largest cotton subsidizer. Over the past decade, China has provided US$41 billion in cotton subsidies, almost 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.

Although China is relatively inefficient in cotton production – with production costs around four times higher than some African countries – subsidies have made it one of the largest cotton producers in the world. The cotton sector in China has grown at the expense of farmers elsewhere, many of whom work in conditions of extreme poverty.

As more than half of the world’s textile production is located in China, it is the world’s largest market for cotton, leaving cotton producers around the world at the mercy of Chinese policies. China’s subsidies artificially boost its domestic cotton production, displacing imports and driving down world prices. China also imposes tariffs as high as 40% 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 hardship for many developing countries.

Fisheries subsidies have fueled the overfishing of global fish stocks, contributing to a global fishing crisis. Today, 90% of the world’s fish stocks are already fully exploited and almost a third are fished at a biologically unsustainable level. Developing countries that depend on fisheries for their food supply and livelihoods are the most vulnerable to the effects of depleting fish stocks. Subsidies enable wealthy 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 become the largest fisheries subsidizer in the world with the largest and most extensive industrial fishing fleet. China spends more than $6 billion a year on harmful fisheries subsidies, nearly three times as much as the second-largest subsidizer, the European Union.

With its fish stocks severely depleted due to overfishing, China has used heavy subsidies – for fuel, shipbuilding and processing – to allow its fleet to expand in international waters. China now has nearly 2,500 vessels engaged in deep-sea fishing. In contrast, the United States, the third largest fishing nation in the world, has only 225 vessels.

China’s heavily subsidized fleet now accounts for 42% of global fishing activity, surpassing the next 10 largest countries combined. For many developing countries, the effects have been devastating. In West Africa, which has some of the richest fishing grounds in the world, locals who fish from hand-hewn canoes compete with Chinese industrial “mega-trawlers” with nets a mile long that pick up everything from the seabed to the surface. In a region that already suffers from high levels of hunger and food insecurity, fish stocks are rapidly depleting, leading to plummeting incomes for local fishermen and a reduction in the national food supply.

Chinese President Xi Jinping has sought to portray China as a champion of global development, pursuing a “win-win” form of economic globalization 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.

Kristen Hopewell is Canada Research Chair in Global Politics at the University of British Columbia and author of Clash of powers: rivalry between the United States and China in the governance of world trade.