China’s rapid rise as the world’s leading electric vehicle producer was not driven solely by Beijing’s industrial policies or state subsidies, but by alliances between local governments and private companies that helped emerging manufacturers overcome a system initially tilted toward state-owned enterprises, according to a new academic study.
The research, conducted by scholars from Peking University and the Australian National University, challenges a widely held view in Europe that China’s electric vehicle success was primarily the result of central government intervention. Instead, the authors argue that local officials and private investors played a decisive role by creating partnerships that allowed private companies to expand, innovate and compete against both state-backed firms and international automakers.
The findings come as economic relations between China and the European Union remain strained, with Chinese electric vehicle exports becoming a central issue in trade discussions. European officials have raised concerns about competition from Chinese manufacturers, while Beijing has opposed trade restrictions targeting its electric vehicle industry.
“Local governments forged alliances with private manufacturers, leveraging capital markets and policy loopholes,” said Lu Fengming, an assistant professor in the Department of Political and Social Change at the Australian National University, and Ma Xiao, associate professor of political science at Peking University, in the study.
The researchers concluded that these partnerships allowed private companies to succeed in an industry where government policy initially favored state-owned enterprises. By examining the development of companies including Geely, Nio, Xpeng and BYD, the study found that local government support helped private manufacturers overcome regulatory barriers, secure investment and accelerate technological development.
According to the paper, China’s electric vehicle industry developed within a policy environment that was heavily influenced by state-owned companies. During the mid-2000s, Beijing increasingly favored state enterprises through government-backed financing and subsidized loans. The researchers noted that this preference became stronger as China shifted toward new energy vehicles in the late 2000s.
Lu wrote that during China’s 10th and 11th five-year plans, nearly all recipients of electric vehicle research grants from the Ministry of Science and Technology were state-owned enterprises. Private companies faced difficulty gaining access to similar resources and struggled to compete in a market shaped by government priorities.
The study argues that private companies survived because local governments pursued their own economic goals, often working with businesses to attract investment, upgrade industries and diversify local economies.
“Local governments and private capital formed durable alliances confronting restrictive regulation, bias towards SOEs, technological competition and innovation under profound market uncertainty,” Ma wrote.
Geely’s expansion in Zhejiang province was cited as one example of this local-level support. The company began producing sedans in 1999 without a central government production license. According to the study, provincial authorities supported the company’s development as part of local economic growth efforts until it eventually obtained official approval from Beijing.
A similar pattern emerged in 2010 when Geely sought to acquire Volvo for more than US$1 billion as part of its international expansion. After major policy banks declined to provide financing, the company received support from China Construction Bank’s Zhejiang branch as well as local governments in Chengdu, Zhangjiakou, Daqing and Shanghai’s Jiading district.
More recent examples include government investments in newer electric vehicle manufacturers. The study highlighted Hefei’s equity investment in Nio in 2020 after traditional state-owned automakers were slow to respond to rapid technological changes. It also cited Guangdong’s investment of 2 billion yuan (US$294.3 million) in Xpeng and Ningbo’s 10 billion yuan investment in Zeekr, Geely’s premium electric vehicle brand.
The researchers said the ability of local governments to adapt and cooperate with private companies was a key factor behind the industry’s transformation. Their findings contrast with the perception that China’s electric vehicle sector was created mainly through centralized planning and subsidies.
Lu said the European Union should examine the conditions that allowed Chinese companies to innovate and expand, arguing that European concerns over Chinese electric vehicle exports should also consider domestic innovation challenges.
“The EU’s actions regarding Chinese EVs stem from a panic about Chinese exports,” Lu said in an interview, while noting that European countries, including Germany, have also supported major companies through preferential measures.
He added that China would need to address challenges facing its electric vehicle companies in Europe, including tariffs and other trade barriers, during discussions with European officials.
European officials are expected to raise trade concerns with Chinese Commerce Minister Wang Wentao during his visit to Brussels. The European side has argued that economic relations with China require greater balance, while Beijing has opposed trade-defense measures and warned it would respond to restrictions.
