State Subsidization and its Effects on Global Capitalism: OECD Report Shows That Post-COVID Subsidization Increases Have Remained, China is the King of Subsidization, and Solar and Semiconductors are the Most Subsidized Industries

      State subsidization is common around the world in capitalist countries as well as those considered to be more socialist, like China. It is one reason why our economy is really a mixed economy and not a fully free market capitalist one. Some subsidization is considered necessary to keep countries productive and profitable, as well as competitive with heavily subsidized countries like China. It is not necessarily a bad thing or a good thing, but it can and does distort markets. We subsidize renewable energy to decrease overall carbon emissions and pollution. Nationalized companies are common. That is a form of what is called state capitalism.

     State subsidization increased in many countries during the COVID pandemic and subsequent geopolitical events that have affected supply chains. In the U.S., we have increased subsidization for critical minerals and semiconductors. We want to reduce our dependence on foreign suppliers, especially China, which controls critical minerals mining, processing, and manufacturing. Subsidization also acts to protect domestic manufacturers from foreign competition.

     Alex Kimani, in an article for OilPrice.com, notes some info from a new OECD report on subsidization:

“A landmark report by the Organisation for Economic Co-operation and Development (OECD) has revealed that global state subsidies have surged to a total of $108 billion, good for an average of 1.3% of company revenues across 15 key industrial sectors and the highest level since the 2008-2009 financial crisis.”

     He notes that China is the king of state subsidization and thus also of market distortion:

“According to the OECD, Chinese firms in strategic sectors received between three and eight times more state support than competitors in OECD countries over the past 20 years, giving Chinese firms a huge leg up in highly competitive markets. Indeed, OECD estimates that this massive government aid--spanning direct grants and below-market loans-- drove roughly 60% of Chinese companies' global market share gains over the past two decades. Chinese companies receive subsidies equivalent to roughly 2.5% of their revenue, compared to just 0.3% seen by firms in peer nations like Japan and South Korea.”

     Subsidies come in the form of government grants, income tax concessions, and below-market borrowings.

     China is especially subsidizing semiconductor chip manufacturing at a high rate, which has enabled it to increase exports by 83.7%. They also heavily subsidize solar panel manufacture.

“State-backed Chinese subsidies averaged nearly 3.2% of annual firm revenues, enabling manufacturers to heavily outinvest competitors and secure over 80% control of the entire photovoltaic supply chain.”

     The OECD report notes that this is a key reason the price of solar panels has dropped by 90% over the past decade and a half, as the panels are sold near the breakeven point. Kimani writes:

“But while it may give states more power to wield, the OECD warns that these ongoing, large-scale subsidies are fueling global industrial overcapacity, artificially depressing international prices and undercutting firms that are actually better and more innovative.”

     He notes that China is phasing out some of its solar panel manufacturing subsidies due to declining profitability as a result of oversupply. He calls China’s solar super-subsidization ‘clean energy hegemony.’ He writes that Western nations are responding to this hegemony by enacting tariffs, not just the U.S., but the EU as well. As he notes below, market distortion is being met not only with tariffs but also by increasing our own subsidies to better compete.

“The uncomfortable reality is that Western economies assumed for decades that private capital, comparative advantage, and open markets would determine the industrial winner. However, China has spent that time building national champions with patient state capital, cheap financing, protected domestic markets, and long-term strategic planning. Tariffs can slow the flow of Chinese products across borders, but little else. The West’s biggest economies now face the choice of whether to try to compete with China on similar terms or whether there is still faith in a private market free-for-all to operate in the national interest.”

     The OECD report says the key to understanding the effects of subsidization on markets is to acquire accurate data, which they can use to derive numbers such as those below. Subsidization has enabled China to gain the most in market share, which does not equate to higher productivity or profitability.

“Around 22% of global market share gains by firms that expanded over the past two decades can be linked to the subsidies they received, rising to 60% for Chinese firms. However, while subsidies increased firms’ market shares, they did not lead to significant gains in productivity or profitability.”

“Large and persistent industrial subsidies can distort global markets, creating unfair competitive advantages and contributing to excess supply capacity,” OECD Secretary-General Mathias Cormann said. “To monitor and analyse how subsidies are shaping global markets, reliable data on industrial subsidies is key. The OECD MAGIC database helps countries build a shared understanding of the challenges, paving the way for co-ordinated efforts to make the global trading system fairer and function better without compromising the benefits of open markets and rules-based trade.”

     The report examines subsidization for each sector in detail. It shows how it mathematically derives the levels and effects of subsidization. From the graphs below, one can see that China is indeed the king of subsidization, and solar and semiconductors are the most subsidized industries.

     The figure below shows the global revenue shares of each sector by country (China, OECD-Asia Pacific, OECD-Europe, OECD-North America), indicating where subsidization has led to concentration of industry market shares.

 

References:

 

Industrial subsidies reach highest levels since the global financial crisis, says OECD. Press release. 1 June 2026. Industrial subsidies reach highest levels since the global financial crisis, says OECD

China's subsidy machine is reshaping global capitalism. Alex Kimani. Oil Price US. June 8, 2026. China's subsidy machine is reshaping global capitalism

OECD MAGIC Database of Industrial Subsidies. June 2026. OECD MAGIC Database of Industrial Subsidies (EN)