Earlier OECD work has shown below-market borrowings (BMB) to represent a significant channel of government support. This form of subsidy captures cases where recipient companies benefit from, inter alia, longer repayment terms, a longer grace period, preferential interest rates, or explicit or implicit government guarantees (OECD, 2021[5]). While BMB can in a few instances involve non-banking institutions, this form of subsidy commonly relies on state banks and other government financial institutions. This explains why BMB are especially large in China, which has a high degree of state ownership of the banking system and where Chinese banks, irrespective of their ownership, maintain close ties with central authorities, as well as with provincial and local governments (OECD, 2024[1]).1 Governments at various levels and governmental institutions, such as the People’s Bank of China and the China Banking and Insurance Regulatory Commission, frequently intervene in the lending decisions of Chinese banks (ibid). In parallel, these banks respond to, and participate in, the implementation of national policies, including Made in China 2025, the Belt and Road Initiative, Strategic Emerging Industries, Going Global, etc., thus acting as key implementing agents of the government’s industrial strategy (ibid).
Energy supply constitutes another sector where SEs can play a significant role as providers of government support by supplying energy carriers (e.g. electricity and natural gas) at below-market rates to industrial users. Government ownership of energy companies, notably electric utilities, is significant worldwide (IEA, 2020[20]). Based on an illustrative sample of 33 large industrial groups operating in aluminium smelting, steelmaking, cement, and chemicals, the OECD found several industrial users, particularly those located in GCC countries and Russia, to have been recipients of below-market energy inputs generally provided by integrated state monopolies (OECD, 2023[3]).
SEs can also be involved in the provision of below-market equity (BME), which arises where government related entities provide new equity on non-market terms (also named below-market equity infusion) or tolerate below-market equity returns for sustained periods of time (also named below-market equity returns). In earlier work, the OECD provided estimates of below-market equity returns for companies with more than 25% government ownership in ten industrial sectors, finding such support to be most evident in the semiconductor sector and aerospace and defence (OECD, 2021[5]). While the relative benefit measured for each government-invested firm seemed on average to be comparable across geographical regions, the aggregate amount was larger in China due to the country’s sheer number of government-invested firms (ibid). These observations are consistent with the growing use of government guidance funds in China by central and local authorities wishing to support domestic producers (OECD, 2024[1]).
While there is ample evidence about the scope and scale of certain subsidies provided by SEs, not all such subsidies are quantified at present, in part due to a lack of transparency from governments and companies alike. While the OECD MAGIC database notably includes estimates of below-market borrowings (BMB), namely loans offered at below-market interest rates by state entities to industrial companies, it has only illustrative numbers on the provision of below-market energy inputs by state energy companies to industrial producers for selected heavy industries and companies (OECD, 2023[3]). Data limitations make it difficult to generalise the estimates on below-market energy inputs to all firms covered in the OECD MAGIC database. Work on estimating below-market equity more systematically is also underway. More generally, there are important data and methodological challenges involved in the systematic quantification of the subsidy implied by the provision of below-market inputs to industrial producers by SEs. Other OECD work underway is nevertheless seeking to explore the question in more detail.