Competition and Coordination: Regional Dynamics in the Rise of China’s New Energy Vehicle Industry
1. Introduction
A major thrust of China’s efforts to promote sustainable development is to decarbonize transportation through the widespread production and use of new energy vehicles (NEVs). China has succeeded in achieving global leadership in NEV production and adoption. Yet, the industry’s remarkable rise has actually occurred through regional development—a phenomenon that lacks systematic analysis in existing studies.
The GBA’s ascension as an NEV production hub has benefitted from the combination of its pre-existing automobile production capacities, as well as its electronic and information technology industries. However, we contend that the GBA’s success is also due to effective coordination of multi-level policies that promote differentiation and competition. The industrial capacities of the GBA are unevenly distributed among the 11 competitive cities, with each seeking to capture all or important parts of the NEV industrial chain. This intra-regional competition informs the expectations of national and provincial policies as cities vie with each other, adapt higher level policies, and enact their own measures to attract industry. The cities compete to attract and develop assembly companies and component suppliers to advance local development. Meanwhile, both car companies and cities recognize the reality of the interdependencies among supply chains and thus, also among individual cities. This means that not only are auto manufacturers competing and interdependent in the region, but the cities themselves are also competing and interdependent. The industry is thus infused with internal competition among both firm-level and governmental actors.
The cities, like the car companies, seek to maximize their revenues from the new NEV industry, but they also understand the importance of regional interdependence on both the production and consumption sides. Building the NEV industry requires promoting production on the supply side, as well as demand from consumers. Each GBA city—with varying capacities and degrees of path dependence in the vehicle industry—is striving to develop some of the NEV production industry chain positions by deploying traditional policy tools such as subsidies, building industrial parks, and attracting technical talent. Consumer demand is built by policies that support charging stations and other necessary infrastructure at a sufficient magnitude, as well as by providing subsidies to purchasers. Regional policy also increases the demand for NEV vehicles by disincentivizing the use of internal combustion engine vehicles (ICEVs) by imposing expensive emission controls. Yet, the introduction of charging stations and emission control policies raises further dilemmas and strategic choices for city governments. Do they support their own industry with these policies? Should they increase interdependence and collective benefits by harmonizing policies in the region? Or do they simply freeride on the efforts of the other cities?
This paper has both empirical and analytical objectives. Empirically, our study provides evidence of the GBA NEV cluster, which provides the foundation for complex policy dynamics between the GBA cities. In so doing, we document evidence of the policy competition and complementarity among the cities regarding NEV production, recharging infrastructure support, and emissions control. Methodologically, this entailed systematic examination of the production, recharging infrastructure and purchasing subsidies, and emissions control policies among the GBA cities. The mixed-method policy inventory employed here is distinct from the many quantitative and case study examinations of China’s NEV industry. Examining these issues in this manner is important not only for clarifying the actual basis for the rise of China’s NEV industry, but it is also analytically relevant for showing how China’s city-based industrial development strategy is a key component of the country’s regionally decentralized system of authoritarian governance. Although the GBA has risen to the top due to being supported by coordinated regional policies, China’s broader strategy to foster pilot cities and NEV manufacturing across the country has incurred considerable misallocation of resources. Only by assessing the regional dynamics of the GBA’s NEV industry and the policy influences on the coordination, competition, and cooperation among the cities can the successes and weaknesses of China’s NEV development be understood.
2. Literature Review
The literature on China’s NEV development typically examines the roles of either national- or city-level policies. To provide a regional perspective, which is inadequately explored in other studies, this review starts by identifying the policy elements used in China and globally to promote the NEV industry. The relevant policy areas involve encouraging production, consumption, recharging infrastructure, and suppressing internal combustion engine (ICE) vehicles. Next, we discuss studies on the regional construction of the auto industry, which offer insights on policy elements that are equally germane for NEV development.
2.1. Regionally Decentralized Authoritarianism and Local Competition
2.2. Production
2.3. Consumption
2.4. Infrastructure
2.5. ICE Emissions Suppression
2.6. A Regionally Based Global Industry
The strength of these global automobile oligopolies—especially their capacity to develop economies of scale in R&D and platform development—was the barrier that Chinese policymakers sought to leapfrog when embarking on their NEV strategy. However, missing from the resulting national NEV policies—as well as the academic assessment of those policies, for that matter—was the recognition that, for the Chinese NEV industry to be successful, the industry would need to develop regional cluster efficiencies. The apparent absence of these policies in the literature, however, does not necessarily mean that they do not exist. Furthermore, it may be more important to examine how the provincial, and especially local/city policies, do or do not foster regional clustering. It is in this context that we investigate the extent of competition, cooperation, and complementarity among these policies.
3. Methodology
First, we compiled and coded an inventory of all NEV and vehicle air pollution-related policies at the provincial and city levels by investigating government websites and policy documents. Policies were identified as guidance, laws, action plans, and announcements, and we were able to identify relevant government websites from news articles and press releases. The inventory was coded using an iterative grounded method in conjunction with guidance from the literature review, as well as from stakeholders such as policymakers and academics. The resulting search terms were coded and classified according to four main categories: production, consumption, infrastructure, and emission suppression. Sub-categories of these policies needed to be standardized across different cities. Content analysis included determining the intentions of the policies, specific instruments and policy origins, and subsequent adaptations. We paid particular attention to whether the policy originated from national, provincial, or local governments, and—if delegated/decentralized—to what extent local governments adapted the policies to their own priorities and limitations.
Next, we compared our policy inventory against those available from private industry analysts, which facilitated the coding of major versus sub-categories and tracing of the dynamics in inter-governmental relations. Consultancy reports were also useful in describing the evolving structure of the industry. These materials were searched to establish leading assembly and supplier firms, as well as to provide evidence of the cluster value chain and its regional distribution of NEV investment data by businesses and by city governments.
Finally, we also conducted interviews with city-level officials in environmental bureaus “on background” to cross-check the organization and substance of the policy inventory, as well as to learn more about the interactions among different administrative levels of government.
Once the policy inventory was assembled into four main categories (production, consumption, infrastructure, and emission suppression), we identified the main policy instruments associated with each category. In doing this, we also mapped out the implementation of specific policies by provinces and cities; evaluated the extent of coordination among different levels of governments; and sought to identify which cities are leaders, followers, or free riders. Tracing the origin and adaptation of policies provides greater insight into how a regional structure was created, whether it is top-down, bottom-up, or integrated. Ultimately, the policy inventory served as the basis for the broader analytical goal of identifying the strands of competition, cooperation, and complementarity in multi-level interaction, with a focus on city approaches to NEV policy. These analytical issues are discussed below.
4. Context: Two Paths of NEV Development in the GBA
As mentioned above, local government pilot programs mirrored the national distribution of initial NEV production. However, the evolution of the NEV industry saw the rapid concentration of vehicle production in the YRD and PRD regions. There, leading ICE vehicle producers such as SAIC and GAC have entered NEV production, and the regions are attracting new entrants, such as Nio (Hefei/Shanghai), Li Auto (Changzhou), and Tesla (Shanghai) in the YRD, as well as BYD (Shenzhen) and Xpeng in Guangzhou/Zhaoqing. These entrants were primarily privately backed and seem to be attracted by both clustering efficiencies and supportive policies, which is certainly the case in Guangdong.
Only Guangzhou companies were committed to investments in all categories and attracted the most investment in vehicle production and key component production. Zhongshan received the greatest investment in battery development. Foshan received the highest investment in component manufacturing and Shenzhen in developing charging facilities. In total, Foshan received the highest investment in NEV production, where battery development has been the most common investment. Guangzhou claimed that they are leading NEV industrial development in the GBA, even though they rank fourth in terms of investment. Guangdong’s policy plan identified Zhaoqing as the key city for NEV manufacturing to support the regional development of NEVs, yet Zhaoqing has the least corporate investment within the GBA. In general, the distribution of investment across cities was more diverse than distribution in terms of categories.
Given the GBA’s rapid development as an NEV production powerhouse, noteworthy regional dynamics are clearly at play. Most of the GBA’s auto industry produces ICE vehicles, and—in its transition to NEVs—income and jobs are threatened. Path dependency complicates the transition for legacy automakers, while companies like BYD (Shenzhen) and Xpeng (Zhaoqing) are unburdened by the costs of two types of R&D and capital investment. Meanwhile, the GBA’s ICE producers are concentrated in Guangzhou and Foshan (GAC (Toyota and Honda), Dongfeng Nissan, and FAW Volkswagen), whereas the leading NEV producer is in Shenzhen, and strong start-ups are located in Foshan and Zhaoqing. The component manufacturers’ reflecting strengths in related industries are more broadly distributed. How policies have supported NEV transformation, including the efforts to coordinate the efforts among cities while enabling competition and regional clustering, is discussed in the next section.
5. Results: GBA Policy Coordination and Differentiation
This section analyzes national, provincial, and city-level government NEV policies to determine the extent of policy coordination among these governance entities. This is performed by being based on the NEV policy categories of production, consumption, infrastructure, and emission reduction.
5.1. Production Policies
5.2. City Policies
5.3. Consumption (Production) Policies
The subsidies for NEV buyers in Shenzhen consist of central and municipal subsidies, while those for NEV buyers in the other eight GBA cities include central, provincial, and municipal subsidies. Guangdong province places Guangzhou, Zhuhai, Foshan, Huizhou, Dongguan, and Zhongshan in a first category; Jiangmen and Zhaoqing in a second category; and the cities outside the GBA are in a third category. Provincial subsidy categories were developed in accordance with national purchase subsidy standards, and they are weighted to support less developed areas.
Hong Kong and Macau receive neither national nor local support for subsidies, but both provide substantial subsidies (principally in the form of tax reductions). Hong Kong began subsidizing low-emission vehicles in 2010. It subsequently increased the requirements from simply lower emissions to hybrids, and now the subsidy is only available to pure EVs. The subsidy tools included reductions in Hong Kong’s very onerous first registration tax, as well as a one-for-one replacement scheme for both private and commercial vehicles. The effectiveness of these policies has been such that EVs accounted for 53 percent of private cars purchased in 2022. Hong Kong will ban sales of all fossil fuel cars by 2035. Macau also subsidizes EVs by allowing them exemption from motor tax. Notably, these subsidies are not tethered to local or national manufacturers. In addition, for a few years in Hong Kong, Tesla enjoyed a near monopoly on relief from high registration taxes.
5.4. Infrastructure (Charging)
Subsidies for charging facilities are also declared level by level. The charging facility companies report the number and rated power of public charging piles that have obtained the access certificate of the Yueyichong platform to the municipal government. The municipal government (except Shenzhen) summarizes the city’s situation to the provincial government, and then the provincial government provides a summary to the central government. Shenzhen, as one of the five Chinese cities with independent planning status, summarizes their charging station situation directly to the central government.
Hong Kong, while not a part of the Guangdong system, promoted charging infrastructure from 2011 by offering developers gross floor area incentives to provide stations in private buildings. Those supports were followed by HKD 2 billion in subsidies for home chargers and HKD 120 million for public chargers. By 2022, Hong Kong had 68,000 private and 1800 public chargers, with policies aiming to reach 150,000 and 5000, respectively, by 2025. By 2023, Macau had developed a network of 1265 public chargers, thereby supporting various national standards and speeds. Macau prioritized developing several hundred chargers for electric motorcycles, and it also has a well-developed electronic location and payment program for chargers that are operated by the power company.
5.5. Emissions Suppression
Shenzhen was once again an exception because it was not provided with subsidies to eliminate yellow-labeled vehicles while the other eight GBA cities received provincial support to assist their municipal efforts. According to the subsidy declaration guidelines issued by cities, the owner who met the requirements should scrap the vehicle within the specified time and apply for the subsidies. Each year, the eight GBA cities (except Shenzhen) summarize the data on eliminated yellow labels before January 9th and apply for the provincial subsidy settlement. The provincial government then calculates the funds according to the audit results and allocates the provincial subsidy funds to each city.
China followed the EU’s path on stricter regulations on newly bought vehicles, ratcheting these up consistently in a 2–3-year cycles. Since the GBA’s provincial government initiated regulations earlier than other provinces, Guangzhou and Shenzhen have led in tightening their regulations in comparison to the other cities, which is when the broader standards were brought in. Still, different cities were able to adapt the regulations to their circumstances in terms of proportion of cars forced into the new standards and the strictness of the standards. Hong Kong was not part of the China emission standards, but it followed European emission standards closely and is somewhat in advance of the other GBA cities. Notably, it established roadside testing stations to enforce compliance. Macau has also followed EU standards while attending primarily to controlling emissions from motorcycles.
6. Discussion: Coordination, Competition, Complementarity, and Free riding
6.1. Production
The impact of national policies proved to be strongly path-dependent because the two pilot cities, Shenzhen and Guangzhou, became the core production bases of China’s NEV industry. At the same time, the nature of top-down coordination provided autonomy to these cities in devising their actual industrial policies. The two cities have implemented the most impactful NEV industrial policies in terms of focus, sectoral governance, subsidies, and facilities such as industrial parks. The province both supported these city actions and attempted to coordinate across the region, but the latter efforts enabled strong regional competition—particularly between the two core cities—on policies that supported headquarters and assemblies. Competition has also emerged in a complementary manner as the other cities primarily focused on developing components or other specializations. For example, Jiangmen focuses on battery recycling, Zhaoqing has comparative strength in die casting, and Zhongshan specializes in fuel cell components. That said, Shenzhen and Guangzhou are striving to develop full industrial chains within their borders, and Foshan, Zhaoqing, and Dongguan seek to maintain or develop full vehicle production. Such competition among cities impacts production locations within the region, as exemplified by Guangzhou’s success in soliciting Xpeng to build a plant within its borders while Zhaoqing lost out on that expansion.
6.2. Consumption (Production)
National influence on NEV industry coordination has been most powerfully demonstrated by providing subventions for NEV purchases, directing subsidies to pilot cities, and by limiting the number of subsidies that local governments can pay for. Early subsidies to pilot governments provided a foundation for their development, and the later expansion of subsidies was based on purchases irrespective of location-supported regional clustering for national markets. The province was a key actor in formulating subsidies because it could allocate them differentially across cities and has done so on a redistributive basis rather than focusing the subsidies on a production basis. Hence, less wealthy cities such as Jiangmen and Zhaoqing were given proportionally higher subsidies than Guangzhou and the other cities. Of special note, autonomous Shenzhen was not affected by this redistribution, and its government could thus allocate the subsidies directly.
The cities are allowed to supplement subsidies by up to 50 percent of the national level, but only Shenzhen, Guangzhou, and Zhaoqing did this, thus indicating less of a capacity to do so and/or less priority on building the NEV market. Other mainland GBA cities may have been less incentivized to do so because they are primarily component manufacturers and receive less payback for building infrastructure. The cities and the provinces can exert other forms of influence, including favoritism for their manufacturers through subsidies and the reporting systems. Zhaoqing, for example, tied subsidies to the purchase of locally manufactured products. Such actions, however, should be legible to provincial and national governments due to the administrative reporting structure. Hong Kong stands as an interesting contrast to policy formation in the mainland GBA because its strong support of EV purchases was not linked to regional production per se, but was rather driven by an acceptance of mitigation responsibilities.
6.3. Infrastructure
Charging stations are necessary not only to secure the adoption of EVs generally, but also to create a market for EVs, whether produced locally, regionally, or imported to the region. Support for charging stations thus contributes to GHG mitigation and supporting the regional NEV industry. Variation among cities in their charging station investments, when compared with their production policies, may indicate acceptance of responsibilities or free riding. Interestingly, the national government reinforced the regional basis of NEV development by delegating charging station strategy to provinces and cities, with the proviso that they do so on an equitable basis within their jurisdiction. The Guangdong provincial government took on this responsibility not only via a differential allocation of subsidies to the cities in the province (except Shenzhen), but also in developing its Yueyichong application platform so that consumers in all cities would be able to find chargers readily. City supplementation of charging stations was allowed but, again, it was primarily Guangzhou and Shenzhen that made such investments. A few other cities did, however, go beyond the provincial government minimums, and there were considerable differences in how the cities planned out their charging station distribution and construction. In addition, Hong Kong, Guangzhou, and Shenzhen, as well as Zhongshan and Huizhou, provided priority parking for NEVs.
6.4. Emissions Suppression
Although China’s NEV strategy was arguably motivated more by the quest for industrial development than a pollution control strategy, the two policy areas are coupled. Particularly after the air pollution crisis of the early 2010s, emissions suppression became a national priority, and there was thus an increased emphasis on NEVs. Driven by urgency, the national government imposed a greater intensity of control, thereby forcing the elimination of yellow label vehicles and successively implementing stricter pollution controls on new vehicles. Yet, even in emissions control, the national government had to work through the provincial and city governments. The provincial government sought to reach the national goals early by allocating elimination quotas and subsidies to the city governments, while city governments were allowed discretion in setting their goals and means, and in applying to the provincial government for the subsidies to pursue their plans. China’s national emission control standards were introduced with the expectation that leading cities would adopt more frequent changes, while less wealthy cities were allowed to make changes on a less frequent basis.
7. Conclusions
Sustainable industrial development was supported by policies that were inherently competitive in nature: they were designed to attract capital and foster local manufacturing capacities that could compete not only globally, but also with firms within the region. Strong policy support from Guangzhou and Shenzhen for their respective assembly firms highlighted this regional competition. Both cities also strive to develop supply chains within their borders. Policies in Zhaoqing, Foshan, and Dongguan also encourage assembly plants. However, the main thrust of the other GBA cities has been to establish specialization within a complex cluster of regional production, thereby orienting their competition to differentiation. The province has encouraged this differentiation to the point of pushing Foshan to focus on FCVs. Coordination is much stronger in consumption, infrastructure, and emission suppression, where national government initiatives are acted on by the province. A remarkable feature of this coordination is the province’s allocation of consumption subsidies in a redistributive manner, whereby less-developed provinces receive greater financial support from the province. The market for NEVs and charging stations has thus developed sturdier foundations across the region than it would have in the absence of provincial coordination. Nonetheless, competition and capacity differences among the cities remain because Guangzhou and Shenzhen have devoted a much higher volume of resources into both forms of support. Coordination is strongest in emissions suppression, where national/provincial policies are carried out in a standard and strict manner by all cities. Yet, even on emissions, Guangzhou and Shenzhen are expected to lead, and they have also initiated rather than waited for directives. Notably, cooperation among the cities on emissions does not seem to be substantive enough, although several bilateral and multilateral agreements have been signed.
In summary, while the RDA governance system was deeply embedded in NEV strategy, there was room within the policy structure for Guangdong to coordinate effective consumption, infrastructure, and emission reduction policies that provide a regional base for adoption of NEVs, while serving as a foundation for the industrial development of NEVs. At the same time, fostering competition was the essential force within the RDA strategy. It resulted in competitive and complementary policy actions by the different cities. Indeed, the industrial effort seemed to eclipse the consumption, infrastructure, and emission suppression efforts of the GBA cities other than Guangzhou and Shenzhen. Without the coordination and redistribution efforts of the province, it is unlikely that a strong region-wide foundation for adopting NEVs would have emerged. Still, the benefits of policy autonomy at the city level are evident. Even though Shenzhen and Guangzhou have created a bipolar regional cluster, they also lead in pulling other cities in all areas of NEV policy design and implementation in addition to actual NEV production and adoption.