A widespread belief in India is that China’s rise in global markets came from the state “pouring money” into companies without strings attached. Economists, however, say research on China’s actual experience points to a different lesson: support works best when it is linked to rising technology standards, R&D investment and performance.
After joining the World Trade Organization in 2001, China expanded subsidies for industry through cheap land, low-cost power, easy loans from state development banks and other financial support. Between 2010 and 2012, the China Development Bank alone extended about $43 billion in loans to 15 solar power firms, including large sums to LDK Solar and Suntech.
The article notes that much of this early support came without clear conditions on research, technology upgrades or efficiency. That approach led to problems such as overreach and collapse—Suntech, once a leading solar manufacturer, went bankrupt in 2013, followed by a decline at LDK Solar.
Subsidy-linked fraud also surfaced in electric buses, where incentives were based on bus length and declared battery capacity. Investigations found cases of poor-quality batteries being used to claim higher subsidies, and even subsidies claimed for buses that did not exist, leading to licence cancellations for some firms.
In 2016, China’s finance minister Lou Jiwei warned that long-term subsidies could make firms dependent on government support and weaken incentives for innovation. China then overhauled its system, tying electric-vehicle subsidies to stricter conditions such as battery energy density, energy-consumption efficiency, real-world usage, direct monitoring and clawbacks when fraud is detected—reducing the number of eligible vehicle models from about 3,400 in 2017 to 1,500 in 2019. The article argues that India, where R&D spending remains low, should draw lessons by attaching subsidies to measurable R&D and technology outcomes rather than offering open-ended support.
