The writer is the geopolitics analyst at Gavekal ResearchA senior official in charge of China’s industrial policy recently vowed to get serious about slashing excess capacity in the country’s electric-vehicle industry, seemingly taking to heart a key trade complaint from the EU. 

The bloc last October initiated an anti-subsidy investigation on imported EVs from China. European Commission president Ursula von der Leyen pledged to defend Europe’s auto industry against cheap Chinese exports driven by subsidy-fed overcapacity. But now Beijing is setting about making things right, trade tensions with Brussels will dissipate, surely? Not a chance. 

Overcapacity is a chronic affliction of Chinese industrial policy. Like an adaptable virus, it is difficult to eliminate and requires continuous suppression, which often takes the form of government-orchestrated industry consolidation. The treatment culls the weak. The companies that survive are fitter and meaner and become even more fierce in export markets.