A sector guided by national policy
China’s automotive industry was shaped by deliberate and sustained industrial policy, according to Michael Enright, Professor in Global Business at Northeastern University in the United States. His analysis, published by the Hinrich Foundation, shows how the sector became a strategic priority soon after China began opening its economy.
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, policy makers aimed to create domestic car manufacturers able to compete globally. This ambition shaped China’s approach to ownership, foreign participation and long term investment in technology.
State ownership and foreign learning
Since the 1950s, government ownership has been central. Firms such as FAW, Dongfeng, SAIC, GAC and BAIC were founded through state initiatives or local government intervention and remain among China’s most powerful automotive groups.
China made systematic use of foreign expertise. In the 1980s and 1990s, international manufacturers were allowed to operate only through joint ventures with foreign ownership capped at 50 percent. Foreign partners were told where to locate factories and required to share technology, train staff and increase local sourcing.
By 1991, internal assessments suggested this managed exposure to foreign expertise had advanced China’s automotive sector by roughly 30 years. The strategy of learning through partnership proved decisive in building domestic capabilities.
Shielding the market and expanding output
High tariffs and localisation rules protected domestic producers. During the 1980s, tariffs on imported vehicles exceeded 200 percent. Even after China joined the World Trade Organisation in 2001, many restrictions remained in place, limiting foreign competition.
Policy makers attempted to consolidate the sector around a small number of large firms. Although only partly achieved, this coincided with the rapid rise of private manufacturers such as Geely, Great Wall and BYD, which expanded alongside state owned enterprises.
Passenger car output increased from 5,200 vehicles in 1985 to more than 31 million in 2024. By that year, China produced about 32 percent of the world’s vehicles, more than the combined output of the United States, Japan, India and South Korea.
Electric vehicles change the balance
Despite scale, Chinese brands long struggled to establish strong identities in global markets. As late as 2019, analysts argued that state owned firms lacked competitive branding.
Electric vehicles offered a chance to reset competition. Identified as a priority in the 10th Five Year Plan of 2001, the sector became the focus of sustained policy support. Wan Gang, a former Volkswagen Audi engineer who later became Minister of Science and Technology, persuaded leaders that China could not overtake established players in petrol and diesel engines but could lead in electric mobility.
Subsidies, charging infrastructure and regulatory support accelerated adoption. Tesla was allowed to open the first wholly foreign owned car plant in China in 2018, but only on condition that it integrated into China’s electric vehicle supply chain. By 2022, 56 percent of Tesla’s global output came from China.
Between 2009 and 2023, central government subsidies for electric vehicles reached an estimated US$231 billion. Buyer incentives at one point averaged R225 302 or US$14 000 per vehicle. Local governments added their own support, while emissions credit systems forced manufacturers to invest heavily in electric technologies.
By 2024, electric vehicles accounted for 41 percent of China’s car market, up from 3.2 percent in 2017. China also represented nearly 70 percent of global electric vehicle sales. BYD held the leading share of the domestic electric vehicle market at 34 percent, followed by Geely, SAIC, Tesla and Changan.
Foreign brands retreat
The rapid rise of electric vehicles undermined foreign manufacturers. Their share of China’s car market fell from 64 percent in 2020 to 35 percent in 2024. German, Japanese and United States brands all recorded sharp declines. Volkswagen and General Motors, once market leaders, were among the hardest hit after misjudging the pace of Chinese innovation.
Global impact and future challenges
China’s expanding electric vehicle production, combined with slowing demand for internal combustion engine vehicles, has driven a surge in exports. In 2024, China exported 5.9 million vehicles, led by Chery, SAIC, Geely, Great Wall and BYD.
Some governments fear that China’s scale and excess capacity will enable it to undercut competitors globally. Enright argues that China’s automotive development demonstrates the power of sustained policy commitment.
“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 manufacturers, the central challenge is regaining relevance in China while defending domestic markets. For governments, the task is deciding how to respond to growing Chinese vehicle exports.
• About the Hinrich Foundation
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.
• Explore more at the Hinrich Foundation website: https://www.hinrichfoundation.com/
