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    China Pumps Money into Auto Industry Despite Oversupply Concerns

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    China’s auto industry is a land of contradictions. Despite having a massive overcapacity for car production, the government continues to pour money into the sector, backing even struggling companies like Zhido. This aggressive push comes as China aims to dominate the electric vehicle (EV) market and establish itself as a leader in “new productive forces” – high-value manufacturing industries. 

    China boasts a production capacity of 40 million vehicles annually, while domestic sales hover around 22 million. This surplus has led to fierce price competition and concerns about a flooded global market, especially with internal combustion engine (ICE) vehicles falling out of favour. 

     EVs: A New Frontier? 

    China’s focus has shifted towards EVs, with over 120 brands vying for market share. However, only four major players – BYD, Tesla, Aion, and Wuling – managed to sell over 400,000 vehicles each in 2023, raising questions about profitability for many companies. 

     Despite calls for consolidation, the government continues to subsidize the industry. This includes cheap loans, discounted materials, and direct financial aid. In 2022 alone, BYD, China’s top EV maker, reportedly received $3.5 billion in subsidies. 

     Local governments are actively involved, backing automakers in their regions. The city of Zhengzhou, for instance, aims to become a “new-energy vehicle city” with a massive production capacity. It even took over a struggling automaker, Haima Auto, to keep it afloat. 

     Zhido, a once-popular mini EV maker, went bankrupt in 2019 after government subsidy cuts. However, it recently secured fresh capital and restarted production, aiming to double sales annually and release new models. This story exemplifies the government’s commitment to reviving even struggling players. 

     The US and Europe are wary of a potential influx of cheap Chinese EVs, fearing unfair competition due to subsidies. Both regions are considering tariffs to protect their domestic industries. 

     China’s auto industry is at a crossroads. While its ambitions to be an EV leader are clear, the overcapacity issue and potential trade disputes cloud the future. The success of its aggressive strategy hinges on achieving profitability and navigating the global market cautiously. 

     

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