He is a leading expert on international competitiveness, regional economic development, and international business strategy and his article on the subject was published last year by the Hinrich Foundation. https://www.hinrichfoundation.com/research/article/fdi/china-auto-policies-playing-the-long-game

“It was the subject of China’s first specific national development plan after its economic opening in the 1980s and continues to receive close attention and protection from Beijing,” he writes.

From the outset, the goal was clear: to nurture strong Chinese auto producers capable of competing both domestically and internationally.

The traces the evolution of China’s auto sector from its early days of government ownership and technology transfer to its current dominance in electric vehicles (EVs). It shows how decades of state-backed strategies, combined with foreign expertise and massive subsidies, have reshaped the global automotive landscape.

Building the foundations:

Government ownership has been central since the 1950s, with firms such as FAW, Dongfeng, SAIC, GAC, and BAIC established through state initiatives or local government takeovers. These remain among China’s leading car companies today.

China consistently sought foreign technology. In the 1980s and 1990s, joint ventures were tightly controlled: foreign firms could own no more than 50%, were told where to set up, and had to transfer technology, train Chinese staff, and increase local content. By 1991, an internal report claimed foreign involvement had already moved China’s auto industry ahead by 30 years.

Protectionism and scale:

Tariffs and local content rules shielded the industry. In the 1980s, tariffs on finished autos exceeded 200%. Even after World Trade Organisation (WTO) entry in 2001, restrictions remained significant. Policies in the 1990s and 2000s aimed to consolidate the industry into a handful of large firms, though private players such as Geely, Great Wall, and BYD also rose outside official plans.

Production soared: from just 5 200 passenger cars in 1985 to over 31 million in 2024. By then, China’s 32% share of global unit production exceeded the combined output of the US, Japan, India, and South Korea.

The EV revolution:

Despite this growth, China struggled to develop globally competitive indigenous brands. As late as 2019, analysts argued state-owned firms still lacked strong identities. The turning point came with EVs. Listed as a priority in the 10th Five Year Plan (2001), EVs became the sector where China could leapfrog established players.

Wan Gang, a former Volkswagen-Audi engineer turned Minister of Science and Technology, convinced leaders that China could not catch up in internal combustion engines but could lead in EVs. From then, subsidies, infrastructure investment, and protectionism drove the EV push. Tesla was allowed to establish the first 100% foreign-owned auto plant in 2018, but only after agreeing to integrate into China’s EV supply chain. By 2022, China accounted for 56% of Tesla’s global output.

Between 2009 and 2023, central government subsidies for EVs reached an estimated US$231 billion. Buyer subsidies alone once averaged R225 302 (US$14 000) per vehicle. Local governments added their own incentives, while emissions credit systems forced investment in EVs.

The results were dramatic. EV sales rose from 3.2% of the market in 2017 to 41% in 2024, when China accounted for nearly 70% of global EV sales. BYD emerged as the leader, with 34% of China’s EV market, followed by Geely, SAIC, Tesla, and Changan.

Foreign firms lose ground:

As EVs surged, foreign brands’ share of the Chinese market collapsed: from 64% in 2020 to just 35% in 2024. German, Japanese, and US brands all saw double-digit declines. Volkswagen and GM, once dominant, were hit particularly hard. Analysts criticised them for underestimating Chinese firms and EV technology, while their exclusion from subsidy programmes left them at a disadvantage.

Export powerhouse:

China’s growing EV capacity, combined with declining ICE sales, created an export surge. In 2024, China exported 5.9 million vehicles, with Chery, SAIC, Geely, Great Wall, and BYD among the leaders. Some fear this overcapacity could allow China to undercut rivals and dominate global markets.

Policy lessons:

Enright concludes that China’s auto industry demonstrates the power of long-term policy commitment, technological change, and massive state resources. Though China’s auto industry has not developed as China’s leaders planned, it shows that long-term policy commitment, technological change, massive state resources, and the influence of the Chinese Communist Party-state have an enormous impact, he writes.

For foreign firms, the challenge is how to regain ground in China and protect their home markets. For governments, the question is how to respond to a flood of Chinese vehicles, often with tariffs and protectionist measures of their own.

The Hinrich Foundation is an Asia-based philanthropic organisation dedicated to advancing sustainable global trade. It produces original research and education programmes to build understanding and leadership in global trade. It operates as a registered charity in Singapore and a 501(c)(3) corporation in the US.