China's exports, subsidies to state owned enterprises and the WTO

Although China agreed to abandon their use by 2001, subsidies to loss-making state owned enterprises continued through 2002. OLS and fixed effects regressions based on Chinese provincial data suggest strongly that the subsidies and annual increments in long term bank loans have stimulated the exports of state owned enterprise in those provinces that have done most of the exporting. Exports of foreign invested enterprises, reflecting provincial exporting conditions, were also important. The subsidies may have compensated for high production costs, weaknesses in domestic markets and/or the desire of local governments to maintain employment in state owned enterprises. Keywords: China exports, subsidies. JEL Classifications: F13, F14.