Summary
– China is heavily subsidizing the production of electric vehicles to boost economic growth and preserve jobs
– Over $173 billion has been spent by China on subsidies for electric vehicles between 2009 and 2022
– The government’s largesse has resulted in oversupply of vehicles in the global market, with production capacity exceeding domestic demand
– China’s example of government intervention in industrial policy, such as construction and automotive sectors, should serve as a cautionary tale
– The rise of “E.V. graveyards” in China demonstrates the consequences of ignoring market forces in favor of state incentives and subsidies
Article
China has been heavily subsidizing the production of electric vehicles (E.V.s) with the goal of boosting economic growth, preserving jobs, and expanding China’s role in the global E.V. business. China spent approximately $173 billion in subsidies for the new energy-vehicle sector between 2009 and 2022, leading to the emergence of 500 E.V. manufacturers in the country by 2019. However, the government started reducing incentives in 2019, resulting in an 80 percent decrease in the number of automakers by 2023. Despite this, China is now encouraging struggling companies to continue producing E.V.s by providing funds and investments. This has led to concerns about oversupply in the global market and the risk of E.V. graveyards filled with unsold or abandoned vehicles.
While the move towards clean-energy technology like E.V.s is important, it should be primarily market-driven rather than heavily subsidized by the government. China’s experience with subsidies for E.V. production serves as a cautionary tale for industrial policy, as the country saw the rise of “E.V. graveyards” once the free money stopped flowing. China’s economic growth in the past was largely driven by government spending, leading to the construction of “ghost cities” with unoccupied high-rise buildings and commercial developments. This unsustainable growth model resulted in rising debt and a subsequent downturn in the real estate market when the government started scaling back its building spree in 2020.
China’s history of auto overcapacity, with more than 100 domestic brands producing more vehicles than the country’s drivers purchase, highlights the importance of letting consumers, rather than central planners, guide the marketplace. Despite the lack of demand for the cars being produced, Chinese citizens indirectly pay for it through their tax money, with automakers having no incentive to stop production as long as government funding continues. The current situation in China underscores the risk of market distortion and oversupply when government intervention drives industrial policy.
The United States should take heed of China’s example in order to avoid repeating similar mistakes. By promoting market-driven solutions and avoiding excessive government subsidies for the production of E.V.s, the U.S. can prevent the emergence of an unsustainable industry reliant on continuous funding. By allowing consumer demand to dictate the direction of the market, the U.S. can achieve more sustainable growth and avoid the pitfalls of government-driven industrial policy. Learning from China’s experience can help the U.S. navigate its own path towards clean-energy technology without succumbing to the dangers of overproduction and market distortion.
In conclusion, China’s aggressive subsidies for E.V. production have resulted in an oversupply of vehicles, highlighting the risks of government intervention in industrial policy. The country’s history of unsustainable growth driven by government spending and subsequent downturns in the real estate market serve as cautionary tales for other nations, including the United States. By prioritizing market forces over government subsidies, countries can avoid the pitfalls of oversupply, debt accumulation, and market distortion. China’s example underscores the importance of consumer-driven demand in shaping the marketplace and the potential consequences of government intervention in industrial policy. Ultimately, the U.S. can benefit from learning from China’s experiences and pursuing a more sustainable approach to promoting clean-energy technology in the private sector.
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