New Economy & Industrial Policy from the Perspective of New Energy Vehicles
May 18-2025
*This article is based on a speech by Xing Jianwei, Associate Professor of economics at PKU NSD.
Basic Concepts & Main Forms of Industrial Policy
Industrial policy refers to a series of policy combinations and market incentives adopted by the government to guide resource allocation, prioritize the development of specific industries, and help the country achieve its strategic goals for the new economy and new industries.
There are a variety of specific forms of industrial policy, of which the following seven are the most common:
1. Fiscal policy: subsidies at the production or consumption end, tax incentives, and regulation through direct government procurement.
2. Financial policy, which covers low-interest loans, loan guarantees, and venture capital guidance funds.
3. Talent policy: including vocational skills training, income tax exemptions for high-end talent, professional training and the promotion of talent training in colleges and universities.
4. Technology policy: focusing on increasing investment in scientific research, establishing technical standards and promoting collaboration between industry, academia and research institutes.
5. Regional policies: establishing industrial parks and special economic zones.
6. Trade policy: restricting the import of certain products and encouraging the export of specific industries.
7. Infrastructure construction: This includes the construction of charging stations for new energy vehicles and the airports required for the development of the low-altitude economy.
Development Effectiveness of China's New Energy Vehicle Industry
Over the past decade, sales of new energy vehicles have grown steadily. From a global trade perspective, China's automotive exports have continued to increase, with electric vehicles making a significant contribution. China has now become the world's leading auto exporter.
China's new energy vehicles are internationally competitive not only in terms of market scale, but also due to their significant price advantage. This price advantage indicates the direction in which the new industry should move in order to access the international market: only by continuing to promote cost reduction and efficiency can we maintain a leading position in international competition.
Technological innovation is another advantage of China's new energy vehicles. In recent years, the number of open patents in China's new energy vehicle industry has increased dramatically, forming a significant lead over competing countries.
Role of Industrial Policy
Industrial policy mainly drives the development of the new energy vehicle industry in the following ways:
1. Accelerating industry turnover
The gradual withdrawal of subsidies accelerates the reshuffle of the industry, enabling high-quality enterprises to be retained at a faster rate. It also drives the upstream and downstream industrial chains and promotes technological progress.
2. Realizing economies of scale
Industrialization, economies of scale and clustering, brought about by industrial policy, can quickly reduce the cost of manufacturing cars and other products.
3. The “learning by doing” effect
There is a “learning by doing” effect within enterprises. As production increases, enterprises will gain experience through trial and error. This helps them to reduce costs and increase efficiency faster.
4. Driving R&D investment
If industrial policy can expand the scale of enterprises in the early stages of emerging industry development, these enterprises will be more proactive in R&D, accelerating technological breakthroughs.
5. Accelerating human capital accumulation
The new energy vehicle industry has a strong demand for human capital in R&D, and cultivating human capital has become an indispensable part of industrial policy.
Summary
Based on the above, let's summarize how industrial policy promotes industry development.
1. Subsidy policies plays an important role in the initial promotion of new energy vehicles, including boosting sales and encouraging technological progress.
2. Industrial development driven by industrial policy accelerates the “learning by doing” effect within the industry. An increase in sales volume accelerates the accumulation of industry experience, leading to increased investment in innovation and R&D, the accumulation of human capital and improvement of the upstream industry chain.
3. Even after the successful implementation of industrial policy, the power of the market is needed to promote the industry's sustainable development.
For the future of emerging industry policy, we can draw inspiration from existing experience. Industrial policy models for emerging industries often cover similar areas, such as fiscal and financial policies, human resources and infrastructure development, industry technical standards, and R&D investment.
