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China\u2019s electric vehicle industry is often held up as proof that the central government successfully engineered global champions through massive subsidies. But for the likes of dominant players BYD, Zhejiang Geely Holding Group and Chery Automobile, breakthroughs came after years of decentralised experimentation and ferocious competition.<\/p>\n
That process created a fragmented market plagued by too many players producing too many cars \u2014 a problem that will be difficult to resolve. Nowhere is this more apparent than in Beijing\u2019s relationship with Brussels. A year after winning a tariff war with the US, China is on the cusp of a similar conflict with the European Union.<\/p>\n
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There are now more than 140 brands in China making clean-energy cars, including battery electric vehicles and hybrids.Bloomberg<\/p>\n
Efforts to offset a sluggish domestic market with overseas growth is a major source of tension. The EU\u2019s trade deficit with China has reached more than $US1 billion ($1.5 billion) a day, sparking worries about long-term industrial decline. Chinese models overtook sales of Japanese vehicles there for the first time in May, despite tariffs imposed by the bloc two years ago. EU and Chinese officials have given themselves until October to produce a joint plan to tackle the imbalance.<\/p>\n
Understanding how the industry got to this point explains why there are no easy solutions. The first thing to recognise is that the central authorities in China never intended to incubate so many carmakers. There are now more than 140 brands making clean-energy cars, including battery electric vehicles and hybrids, according to consulting firm AlixPartners.<\/p>\n
A study published in this month\u2019s edition of The China Journal, an academic publication, challenges the prevailing idea that top-down industrial policy was the primary driver of China\u2019s EV boom. The 1980s reform period onwards favoured large state-owned automakers, noted co-authors Fengming Lu and Xiao Ma. There were nine designated firms, including China FAW Group and SAIC Motor Corp. They were showered with preferential treatment, including state credit, subsidised loans and the pick of partners when foreign vehicle makers arrived eager to form joint ventures in exchange for access to the emerging market.<\/p>\n
Related Article Even though Beijing tightly restricted new entrants, regional governments motivated by the prospect of jobs, tax revenue and bragging rights began to behave more like corporations. They became active investors, promoters or, in some cases, owners of local enterprises.<\/p>\n This approach, while attractive to regional governments, ended up creating a capacity glut that is weighing on the earnings of many global carmakers. Mercedes-Benz said last week that intense competition contributed to an 8 per cent decline in second-quarter deliveries. BMW slashed its profit outlook in June and Volkswagen\u2019s executives are reportedly worried about long-term survival<\/a>.<\/p>\n Many of today\u2019s top EV companies emerged because local governments circumvented the rules by partnering with private companies. Their scrappy underdog status made them more nimble than state-owned counterparts, helping them to eventually dominate the industry<\/a>.<\/p>\n Chery, China\u2019s largest exporter, came into existence after the city of Wuhu in the south-eastern province of Anhui sold a cement business and decided to launch a carmaker. Geely, which vies with BYD as the top EV seller, was backed by the wealthy provincial government of Zhejiang. Shenzhen-based BYD worked with a number of cities as it expanded.<\/p>\n The bottom-up model produced some of China\u2019s most successful companies<\/a>. But it also encouraged local officials to back as many contenders as possible, creating excess capacity. Even though the property downturn that began five years ago left regional governments with less revenue from land sales, they arguably now have an even greater incentive to develop industries that can replenish their coffers.<\/p>\n This could explain why the number of automakers selling new-energy cars has not substantially declined, even as margins and profitability have fallen due to greater competition. Last year, 23 new brands entered the industry, while only nine exited.<\/p>\n Consolidation may make economic sense, but it often runs counter to political incentives. Local governments remain reluctant to let hometown stalwarts fail because they provide potential job growth during an economic downturn. That\u2019s an uncomfortable reality for Beijing and its trade partners.<\/p>\n Related Article The EU should recognise that China\u2019s overcapacity is not simply the product of central planning or subsidies. It\u2019s the legacy of competition among regional authorities racing to build their own industrial champions. That history helps explain why there are no quick fixes.<\/p>\n Bloomberg<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/06\/1780481657_434_c7ee08638adf14bb35687bf3ccbb8a00e2e270c5.jpeg\")
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Chery, China\u2019s largest exporter, came into existence after the city of Wuhu in the south-eastern province of Anhui sold a cement business and decided to launch a carmaker.AP<\/p>\n![\"Recently](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/05\/4b5c255254d6eced3e04c03b7cdce5f9a6c53859.jpeg\")
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