THE CHINESE electric vehicle (EV) industry is one of the largest manufacturers of EVs in the world, accounting for 1.3 million of the 3.1 million sold globally in 2020 alone. The industry is often lauded as a benchmark for other countries to emulate. Things are not that simple, however. China did not achieve such high sales overnight; the EV market of today is a result of a decade’s worth of policies that accelerated EV technology development, spurred investments in the research and development (R&D) department, and encouraged consumption. These policies often required an inordinate amount of economic gerrymandering that more liberal nations will find difficult to replicate. Moreover, the Chinese Communist Party’s (CCP) insistence on EV development is not a genuine effort to serve environmental problems. China’s economic prowess came at the price of the environment. It is misleading to suggest that China invested in the EV industry to counter rising carbon levels. China had less altruistic reasons for stimulating its EV manufacturing sector, such as slowly weaning itself off foreign assistance and working toward self-sufficiency. Regardless of China’s motivation, one fact remains steadfast: the Chinese government molded its domestic EV industry into the powerhouse it is today through governmental incentives and protections.

Motives behind EV development

   China’s interest in expanding the EV industry in 2009 was not fueled primarily by concern for the deterioration of the environment. In 2009, China’s automobile industry sold 10.3 million vehicles, an increase from the 6.7 million sold in 2008. This growth persisted, and eventually, China surpassed the United States’ passenger vehicle market in 2015. This success led to greater demand for oil; from 2009 to 2015, China accounted for about 43% of “global incremental oil demand growth.” In fact, over the past decade, China’s oil demand increased while its domestic production decreased, increasing China’s reliance on foreign oil. 73.4% of Chinese oil consumption was made up by imports in the first half of 2020[1].

   The CCP fears this dependency. During the 1950s, it was dependent on the Soviet Union for most of its oil imports[2]. When the crude oil supply dried up during the fallout between China and the Soviet Union, China faced an energy crisis. By turning to electric vehicles, China will slowly decrease its dependence on imported crude oil from foreign nations[3]. Continued investments in the EV industry mean that China will be able to “supply the transportation sector's energy demand with domestic coal and other local power sources.”

   China also seeks economic dominance through its EV industry[4]. In the past, Chinese cars were regarded as cheap copies of Western cars. To name a few, the Chinese Wind X7 and CH Auto Lithia Sports were exact replicas of a Range Rover Evoque and the Audi R8, respectively. Before the boom of the EV sector, Chinese cars could not compete in the international market due to their reputation as being cheap “knock-offs” of Western cars. Now, however, with a hold on 60% of the world’s supply of lithium, a key component of EV batteries, China is able to dictate prices. With lower prices, Chinese EVs are able to outcompete Western companies.

The growth of a decade

   Since 2009, the growth of the Chinese EV market has heavily relied on government subsidies and protections[5]. Before 2009, subsidies were mostly given as R&D grants, which benefited companies, but did not stimulate demand. In the midst of the Great Recession, the Ministry of Science and Technology launched a program in the cities of Shanghai, Changchun, Shenzhen, Hangzhou, and Hefei to provide subsidies for purchases of public vehicles and electric buses. The following year these subsidies were expanded to cover private purchases of EVs. From 2010 to 2016, local governments could even give out additional subsidies at their own discretion. Moreover, unlike America and Europe which subsidized all EVs, China made imported EVs ineligible for subsidies and enforced tariffs on them. These subsidies allowed China to build its EV industry from the ground up.

   The extent of China’s economic gerrymandering becomes clear when looking at some of the more extreme policies adopted by individual Chinese provinces. For instance, the local government in Shenzhen gave its residents subsidies that were considerably higher than the ones provided by the central government. In 2014, a Shenzhen resident could purchase Build Your Dreams Auto’s e6 model at one-third off of its original price of about $53,000[6].

   These generous subsidies were taken advantage of by many[7]. Manufacturers received subsidies for non-existent EVs or EVs that were supposed to be ineligible for subsidies. So lucrative were the subsidies that some companies even began purchasing their own EVs. This phenomenon reached an all-time high in 2016.

   The subsidy model was also unsustainable due to its immense cost; the government spent almost $60 billion between 2009 and 2017 on the EV industry[8]. Subsidies for purchases amounted to $37 billion. It is no surprise that subsidies accounted for almost 25% of total EV sales from 2009 to 2017. Maintaining such high levels would have bankrupted the CCP in the long run. The program also critically failed to stimulate high-technology development. Even though the subsidies had helped create almost 400 companies by 2018, only 15% of these companies could manufacture high-quality EVs while the rest were incapable of mass-producing their vehicles or were capable of only producing subpar vehicles. 

   For these reasons the central government began phasing out subsidies, replacing them with the “Dual Credit” policy. This program standardizes government inducements for all automobile makers in China[9]. Manufacturers can earn “credits either by hitting the mandated EV [production] target[s] or rais[ing] the fuel efficiency of their traditional gas-powered vehicles.” If an automobile company cannot earn the required credits in a given year, it has to buy credits from a company that has surplus credits. Over time, if a company is still unable to comply with the yearly target and keeps buying credits to stay afloat, that company will go bankrupt and be forced to close.

   The Chinese “Dual Credit” system has added global value to the EV industry in China. This policy has incentivized more foreign competition to enter the Chinese EV market as it does not care for the identity of the manufacturing company. It simply sets certain targets, and all companies, domestic and foreign, are welcome to earn credits and meet the target or make up for them by buying credits from a more successful counterpart. For instance, Volkswagen committed to investing $2.3 billion in two Chinese EV companies, Guoxuan High-Tech, and Anhui Jianghuai Automobile Group. The German automaker has also pledged a further $1.3 billion in China’s local EV battery production. Given this immense foreign investment and China’s monopoly on lithium, China is on track to developing a cheaper EV battery and, once successful, set low prices that other companies will be forced to compete with or go out of business.

*                 *                 *

   A decade ago no country would have expected China to become the world’s largest market and manufacturer of EVs. In 2011, a mere 5,000 EVs were sold in China. Fast-forwarding eight years to 2019, China alone sold 1.2 million EVs while the rest of the world sold only one million. China has set even more ambitious goals for the future. The Chinese Ministry of Industry and Information Technology stated that it aims to increase the market share of EVs to 25% of all cars sold domestically from 5% in 2019.

   China’s stellar EV growth is commendable. However, it occurred through inordinate economic gerrymandering that other nations will not be able to replicate. Moreover, China continues to be one of the worst polluters in the world. The same year that China started laying the groundwork for expanding its EV industry China derailed a climate change deal at the Copenhagen Summit[10]. Moreover, it continues to block other climate initiatives and hides the true scale of its greenhouse gas emissions[11]. Taking this information into account and then analyzing the reasons behind China’s sudden investment in the EV sector reveals that, like always, economic dominance and political independence were at the top of the CCP’s agenda.

[1] China Dialogue

[2] Baker Institute

[3] Oil Price

[4] Forbes

[5] MacroPolo

[6] Sustainalytics

[7] Shine

[8] Wilson Center

[9] NBR

[10] The Guardian

[11] The Guardian