State subsidies report casts doubt on fair business practices in China

Controversy over unfair subsidies provided to mainland companies, especially those given to sectors suffering from overcapacity, has been stirred up after state media reported that almost 90 per cent of mainland listed firms have received subsidies.

The revelation could raise tensions with foreign governments, which have already risen sharply since Beijing pursued an anti-monopoly campaign that critics say amounts to protectionism, leading some lobby groups to call for action by the WTO.

"Such a practice is surely unfair and breaches market rules. In particular, granting subsidies to those companies with overcapacity would hurt China's [economic] rebalancing reforms," Tsinghua University researcher Yuan Gangming told the South China Morning Post.

The US Chamber of Commerce in Beijing earlier this month said the central government's use of the anti-monopoly law against foreign firms may violate its World Trade Organisation commitments.

Some 88 per cent, or 2,235 of the mainland's 2,537 listed firms have been given total subsidies of 32.26 billion yuan (HK$40.6 billion) in this year's first half, up a third year on year, Xinhua reported on Sunday.

More than 90 listed firms were even able to post a first-half profit because of the subsidies, without which they would have been in the red, it added. Total net profit achieved by the 2,537 firms grew 10.1 per cent year on year to 1.27 trillion yuan, Xinhua said, citing the firms' interim reports.