In 2014 alone, more than 80,000 companies registered in China to enter the EV sector, more than doubling the previous year’s number of new registrants. The strategic emerging industry appeared to be a textbook cautionary tale of waste, corruption, overcapacity, vicious price wars and low profitability.
As a veteran practitioner of industrial policy, however, the Chinese government is familiar with this malaise and skilled at treating it. It began raising the bar for issuing production licences and withdrawing subsidies in phases. Vehicles with low driving ranges lost support first. The low-tech producers were either barred from entering the market or forced to exit it. Those who withstood both the price-war attrition and the government-engineered culling became ruthlessly efficient.
China’s well-rehearsed industrial policy can be staggeringly wasteful but still produce stunning results. This same pattern of fattening up companies with subsidies and protection and then cutting support and introducing market discipline to weed out the weak has already produced domestic and export juggernauts in steel, shipbuilding and solar panels.
