China Unplugs a Decade of EV Subsidies, Pivoting to the Next Tech Frontier

After a decade of relentless state-led investment that made it the world's undisputed electric vehicle (EV) leader, China has made a stunning policy pivot. In its 15th Five-Year Plan (2026-2030), Beijing omitted EVs from its official list of strategic industries for the first time in ten years. The move signals that China's leadership believes the industry has graduated from its hyper-accelerated development phase and is ready to face market forces, a transition that holds critical lessons for the U.S. and its allies.

Venture-Capital Statecraft and Its Side Effects

China's EV dominance was built on a strategy best described as venture-capital statecraft. From 2009 to 2023, the government poured an astonishing $230 billion into the sector through subsidies, tax breaks, and cheap credit. This happened even when demand was negligible; in 2009, total EV sales in China were just 500 units. The bet paid off. By 2024, China's EV production hit 12.4 million units, accounting for 70% of global output.

However, this supply-side push created severe economic distortions. The strategy led to what Beijing now calls “involution”—a state of hyper-competition, overcapacity, and deflation. China's EV production capacity is now three times its domestic demand. As of August 2025, only three EV makers—BYD, Li Auto, and Aito—are profitable. This imbalance is economy-wide: nearly a quarter of all industrial firms are losing money, the highest share since 2001, as investment consistently outpaces consumption.

The Export Release Valve and the New Blueprint

So far, China has managed these pressures through a crucial 'release valve': exports. With domestic demand weak, overseas markets have absorbed the massive overcapacity. China's record $992 billion trade surplus in 2024 was a key driver of its 5% GDP growth. In markets like Brazil, Mexico, and Thailand, Chinese models account for over 80% of EV imports. Some local officials even resorted to inflating economic data by exporting “zero-mileage” cars as 'used' to foreign markets at a discount.

With the EV industry now considered mature, Beijing is applying the same playbook to a new set of frontiers. The new strategic industries list is a guide to the future: quantum technology, bio-manufacturing, hydrogen and fusion energy, 6G communications, embodied intelligence, and brain-computer interfaces. These sectors are now slated to receive the same preferential financing and state support that built China's EV empire.