Why are most developing countries not using China's mercantilistic and state-led economic policies with heavily subsidized state companies?

Question

The commitments and concessions that China made were deeper than those made by almost all other WTO members. Countries that joined the WTO after 1995, including China, acceded through the process outlined in Article XII of the Marrakesh Agreement. These “Article XII members” have typically been required to make more extensive commitments than original members that joined through GATT. China’s reform commitments were deeper than all other Article XII peers, except for Russia, which acceded to the WTO in August 2012. Kazakhstan and Vietnam faced similarly stringent, but less extensive, concessions due to heavy government intervention in their respective economies.

https://chinapower.csis.org/china-world-trade-organization-wto/

China had to meet more stringent conditions before joining the WTO because of the perceived advantages that a state-led economy might have over more liberal economies. However, if such advantages are as big as we claim, then how come more developing countries are not using China's mercantilistic and state-led economic policies with heavily subsidized state companies?

Answer 1

Subsidies can get challenged by other WTO member countries.

At this link is this quote explaining "what we stand for" where "we" is the WTO speaking for itself...

Discouraging “unfair” practices, such as export subsidies and dumping products at below normal value to gain market share; the issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.

The challenges can be worked on in the forum provided by the WTO as described at this link. A quote...

The WTO operates the global system of trade rules and helps developing countries build their trade capacity. It also provides a forum for its members to negotiate trade agreements and to resolve the trade problems they face with each other.

You said that there are "perceived advantages that a state-led economy might have". Advantages to whom? It's a disadvantage to operate a company that pays taxes to a government that will not subsidize it as generously as it does others. It's a disadvantage to operate a less subsidized company in the same geographical area as a more subsidized company because the more subsidized company is drawing from the same labour pool. Within an industry, companies also draw from the same non-labour resources so some companies are disadvantaged. Sometimes state-led industrial support is a form of "corporate welfare" or "social assistance" to the workers of a particular unprofitable industry so it just perpetuates industries or companies that will continue to decline. It's might be a disadvantage to a government budget to support that burden. If some countries don't want to create these disadvantages they might want to have fewer subsidies.

The WTO can authorize trade-related retaliation so a subsidizing government would have to consider if the risk of that kind of outcome is disadvantageous. Currently the WTO does not have a quorum so it is less effective than it was supposed to be.

Mercantilism as a long standing policy leads to an accumulation of foreign currency at businesses and individuals in the "mercantilist" country. The currency will be converted to foreign assets. It is a disadvantage to the owner if foreign assets turn out to be worth less than expected.

One example of "state-led economic policies" is state-directed investment. For example there is the Chips and Science Act. The conventional wisdom is that the "and Science" part is general welfare enhancing if it really ends up supporting basic science because the more we know the more industry can benefit from the knowledge and then produce value. The usual criticism is that the investment may turn out to be a waste of money like the Solyndra failure. Another example of state-directed investment is the real estate market in China. A quote from that 2023 July 11 news report...

China has extended some policies to bolster its ailing property market, as the country struggles to reignite economic growth.

This has been going on for years. In some countries it takes a long time for a new home to get occupied. There is less wear and tear on an unoccupied home and people are willing to hold these investments because of a lack of alternatives. Every day that an apartment or house is unoccupied is a day that brings it closer to its eventual demolition so each day represents wasted resources.