A top official overseeing China’s industrial policy has recently committed to a rigorous approach in reducing surplus capacity within the nation’s electric vehicle industry, evidently acknowledging and responding to a crucial trade grievance raised by the European Union.
In October of the previous year, the European Union initiated an anti-subsidy investigation into electric vehicles imported from China. European Commission President Ursula von der Leyen vowed to protect Europe’s automotive industry from the threat of inexpensive Chinese exports fueled by subsidy-driven overcapacity. However, even as Beijing takes steps to address the situation, the likelihood of trade tensions easing with Brussels remains uncertain.
The issue of overcapacity persists as a chronic challenge in Chinese industrial policy. Resilient and adaptable like a virus, it proves challenging to eradicate and necessitates sustained suppression, often manifesting through government-led industry consolidation. This approach involves culling weaker entities, resulting in surviving companies that are more robust, aggressive, and even more competitive in international export markets.
In 2009, China strategically positioned Electric Vehicles (EVs) as a ‘strategic emerging industry,’ inundating it with subsidies while safeguarding it behind protective barriers. At its zenith, a single EV could garner up to $19,000 in consumer subsidies, alongside tax breaks, affordable resources, and bank credits. Foreign carmakers and battery producers faced stringent eligibility criteria, limiting their participation.
This government-backed support, however, fostered an environment ripe for exploitation. Numerous companies surfaced, producing inexpensive, low-tech EVs with minimal consumer appeal. Many directed their products toward oversized municipal fleets, leading to a glut in the market.
Amidst government policy shifts and a dynamic EV landscape, BYD, China’s EV leader, defied the odds and surged ahead. Despite initial challenges, BYD not only survived but thrived, unveiling the innovative Blade battery and outperforming Tesla in the market. China’s well-practiced industrial strategy, marked by subsidies and protection followed by rigorous market discipline, has yielded success stories in various sectors. Now, Chinese EV champions set their sights on the EU market, challenging protectionist measures in the U.S. The consolidation in China’s EV industry, while addressing overcapacity, sets the stage for intensified competition, leaving European carmakers to face more formidable rivals in the global arena.
