Every year, governments around the world spend huge sums of money to subsidize businesses. This column examines the relationship between the allocation of government subsidies and the total productivity of listed Chinese companies. The authors find little evidence that the Chinese government “systematically picks the winners.” Ex ante firm productivity is negatively correlated with subsidies received by firms, and subsidies appear to have a negative impact on ex post firm productivity growth.
Our sample includes all companies listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2018, with the exception of financial services companies, for which calculating productivity presents a number of challenges.
It’s from a new study by Lee Branstetter, Guangwei Li and Mengjia Ren. Such estimates are usually fraught with questionable assumptions, but at the very least the results are not positive.