Today on the podcast, we speak with Jacob Gunter, Head of Economy and Industry at MERICS, about how securitization, industrial policy, and power govern China’s economic choices and long-term strategy.
“You’re not taking your marching orders in a directive fashion as maybe happened under the Soviet Union. Instead, you have to read the theory, the party’s theory journal, study the ideology, and understand the general direction that things are meant to move in. It’s very difficult for people to navigate that, and it generates a lot of these consequences as a result.” — Jacob Gunter
TLDL:
Overcapacity is an consequence of China’s securitization governance model. Chinese policymakers have tolerated inefficiency to protect strategic industries, reduce external vulnerability, and safeguard internal stability. That logic, once concentrated in traditional SOE sectors, is now shaping outcomes across a wider share of the real economy.
EVs show how the system behaves under this industrial policy. Market shakeouts slow as local officials protect “local champions,” employment stability dominates incentives, and a weak safety net raises the political cost of failure. Price wars increasingly substitute for policy-led consolidation, with profitable firms attempting to force outcomes the state hesitates to impose directly.
The larger strategic risk is shifting outside China. Even as the U.S. and EU harden defenses at home, Chinese firms can scale through Southeast Asia, the Middle East, Africa, and Latin America, where buyers prioritize affordability, bundled delivery, servicing speed, and “good enough” performance. It is in these third markets that competitive displacement becomes hardest to reverse.
*Update note: 15th FYP planning indicates there will be a focus on tightening efficiency over the next five years.
