Consistent with the rise of the People’s Republic of China (henceforth China) as a leading manufacturer in many key sectors, there has been a tendency for state enterprises (SEs) to take on a growing role in manufacturing supply chains globally. This growing role is particularly visible in shipbuilding and the production of aluminium, steel, cement, and fertilisers (Figure 1).
How preferential trade agreements address market distortions from state enterprises
Percent of revenue generated by firm with over 25% government ownership
Note: The graph above is based on the sample of large firms covered by the OECD MAGIC database and does not account for the entire set of firms operating in each sector.
Source: OECD MAGIC database (accessed 9 March 2026).
State ownership is, however, not confined to heavy industries. There has been a notable increase in the participation of SEs in other sectors such as the production of automobiles, wind turbines, and telecommunications network equipment. Beginning in the mid-2010s, Chinese government funds have also injected equity into semiconductor producers, thus increasing the footprint of the state in an industry hitherto largely private (OECD, 2024[1]; OECD, 2019[2]). SEs are not only found in China, however, with other regions such as countries of the Gulf Cooperation Council1 (GCC) also contributing to the growing weight of state actors throughout industrial supply chains.
Available evidence from the OECD MAGIC database shows that the grants and below-market borrowings received by industrial firms relative to their revenue increase with the extent of these firms’ government ownership, thus suggesting that SEs receive on average relatively more subsidies than their private competitors (Figure 2). This is true not only for large industrial firms that are majority-owned by governments but also for firms with 25‑50% state ownership.
As noted above, SEs and other government-invested firms tend to be concentrated in a few jurisdictions, with China and GCC countries possessing relatively more SEs among all sampled firms. This explains why many of the distortions documented by the OECD, which benefit or are caused by SEs, are concentrated in firms based in China and GCC countries (OECD, 2024[1]). In the case of China, many of these SE-related distortions involve the provision of debt and equity financing on non-market terms by state financial institutions and government guidance funds owing to Chinese authorities’ control over the financial sector (ibid). In the case of some GCC countries, distortions often arise in relation to the state’s control over the energy sector, which can result in the provision of natural gas and electricity at below-market prices to industrial firms (OECD, 2023[3]).
Industrial subsidies by ownership category, percent of revenue (2005-2024)
Source: OECD MAGIC database (accessed 9 March 2026).
In addition to being relatively large recipients of subsidies, industrial SEs may also benefit from non-pecuniary advantages induced by a more favourable application and enforcement of the country’s regulatory regime in areas such as competition law, public procurement, or market access (OECD, 2024[1]). This could include, for example, situations where the state does not enforce competition rules equally against SEs and private enterprises in the context of merger-control assessments, or cases where the state favours domestic SEs in government procurement.
Subsidies and other advantages limited to, or predominantly received by, SEs can contribute to distorting domestic and international markets, and thus trade and competition. This may generally be the case where subsidies and other advantages help SEs to gain often significant market shares at home and abroad.2 Trade and competition distortions may also arise in instances where government support or advantages enable anti-competitive conduct by SEs, such as bidding for or acquiring foreign companies at predatory prices (OECD, 2023[4]) [TAD/TC(2022)9/FINAL]. Another channel for market distortions would be where government support creates significant imbalances between supply and demand by favouring capacity expansion that would not occur under market conditions, including by using subsidies to keep in business SEs that are financially under-performing or economically unviable (OECD, 2021[5]; OECD, 2024[1]). This in turn can affect innovation in the sector concerned and have knock-on effects on market concentration.
SEs are not only large recipients of subsidies but can also be providers of support themselves, often acting as intermediaries between the government and the beneficiaries of support. This is notably the case where state financial institutions provide financing to other firms on below-market terms or where SEs, including state energy companies, provide inputs (e.g. raw materials, energy carriers, intermediate goods, etc.) to other firms at below-market prices (OECD, 2021[5]; OECD, 2023[3]; OECD, 2024[1]). In other instances, SEs downstream may purchase goods or services at above-market prices to support domestic suppliers or government investment funds (another type of SE) may provide equity financing on non-market terms (OECD, 2021[5]; OECD, 2024[1]). The OECD has documented and, where feasible, quantified various forms of subsidies involving SEs (Annex B).
Taken together, these findings show the important role that SEs play as recipients or providers of subsidies, as well as beneficiaries or enablers of non-market policies and practices in various manufacturing sectors. They underscore the necessity for countries affected by the resulting distortions to craft appropriate policy responses at the multilateral, plurilateral, and domestic levels.
← 1. Member countries of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
← 2. Recent evidence indicates in this regard that the subsidies captured in the OECD MAGIC database have increased global market shares for recipient firms (OECD, 2025[22]).