“When it comes to new projects, it’s always the same few things... Do all provinces in the country have to develop industries in these areas?”
In a rare and candid moment of public introspection, Chinese President Xi Jinping has questioned the country’s massive, state-driven bets on electric vehicles and artificial intelligence. The comments signal a potential shift in industrial policy and fuel a growing debate about whether China’s tech-centric growth model is creating more problems than it solves.
Cracks in the Foundation
Xi’s remarks come as Beijing grapples with a host of self-inflicted economic wounds, all stemming from an over-concentration in a few high-tech sectors.
EV Price War
Dozens of companies are slashing prices and selling vehicles below cost in a desperate race to survive, destroying profitability.
Industrial Overcapacity
Massive state subsidies have led to far more factories and production capacity than the domestic market can possibly absorb.
Deflationary Pressure
The producer price index (PPI) is in a steep decline as companies are forced to cut prices, a warning sign that deflation is taking root.
Global Trade Tensions
To deal with overcapacity, Chinese companies are exporting cheap goods, flooding global markets and provoking tariff threats from the West.
Key Concept: "Involution"
"Involution" (内卷, nèijuǎn) is a popular Chinese term for the phenomenon of excessive internal competition that doesn't produce real innovation or progress. In the EV market, it describes a zero-sum game where companies compete on price alone, leading to diminishing returns for everyone involved.
A Shift in Tone from the Top
Xi’s questioning marks a notable change from a leadership that has long championed tech dominance as China’s destiny. The message is clear: a one-size-fits-all tech push may not be the answer for every region, and a more diversified economic strategy may be required.
Despite reporting 5.3% GDP growth for the first half of 2025, analysts believe much of this was driven by a temporary surge in exports before new U.S. tariffs kick in. With shaky consumer confidence and high youth unemployment, the underlying domestic economy remains fragile, a fact that has clearly caught the attention of China's top leadership.
Final Thoughts
China’s dream of leading the world in AI and EVs was bold and, for a time, effective. But as the negative consequences mount, even Beijing is beginning to ask a critical question: Is it time to rewrite the script?
Over-concentration is a risk: Pouring national resources into only a few sectors can create dangerous economic imbalances.
Domestic problems have global consequences: China's internal price wars are now fueling international trade disputes.
A policy pivot may be coming: Xi's comments suggest a move toward more diversified, region-specific economic strategies may be on the horizon.
