Weekend Long Read: Chinese Auto Industry’s Clean Future

By Hu Shuli, Wang Liwei and Qin Min

Miao Wei. Photo: AI generated

To celebrate Caixin’s 15-year anniversary, we’re republishing a series of past interviews with some of most influential people in business and government in China. Looking back at what they said at the time offers insights into some of the most pressing issues of today, like climate change, the green transition and the China-U.S. tech war.

Miao Wei, 69, is an auto industry heavyweight turned policymaker best known as a pragmatic and quick-minded reformer in China’s political sphere. After graduating from Hefei University of Technology with a major in internal combustion engines in 1982, he spent more than a decade working in the automotive sector.

From 1997 to 1999, Miao helmed the state-owned auto giant Dongfeng Motor Group Co. Ltd. as party secretary and general manager. He later spent a decade as China’s minister of industry and information technology before retiring from the position in 2020. Currently, he serves as vice chairman of the Committee on Economic Affairs, part of the National Committee of the Chinese People’s Political Consultative Conference.

During his stint at the Ministry of Industry and Information Technology, Miao gave three interviews with Caixin in 2014, 2020 and 2024, during which he shared his insights into the formulation of industrial policy, the development of the domestic new-energy vehicle (NEV) sector and intelligent driving technology, and Chinese automakers’ global expansion efforts.

Below is a selection of Miao’s key insights shared during the interviews.

Industrial policy

Caixin: How will China set industrial policy in the future?

Miao: The future focus of industrial policy will be on resolving outstanding problems such as technological innovation, fair competition, industrial organization, regional distribution, energy efficiency and environmental protection, as well as opening China to the outside world.

However, we must make strategic plans, such as clarifying which areas need more industrial policies, which areas need revised industrial policies, and which areas need fewer industrial policies to account for the fact that there are few market shortcomings.

The first consideration when drafting a policy is how to manage relations between the government and markets, and how to limit industrial policies in ways that only remedy market shortcomings and do not let them supersede market roles. The goal is to let markets ultimately play a decisive role in resource allocation. Industrial policies are more likely to focus on competition policies to create a market environment with fair competition in all industries.

The second consideration is to promote the drive to innovate. We are now in a key era of transformation of comparative advantages, one in which technological innovation will determine industry’s future development and replace cost advantages to determine China’s status in international competition. For that reason, innovation-supporting policies should be among the core components of functional industrial policies.

The third is a consideration that was often overlooked in the past: Making the supply side and the demand side equally important. Even though industrial policies are based on Western experiences, they tend to be skewed toward the supply side overall. Demand-side policies, however, are just as important to industrial development. For example, the solar industry needs to be better coordinated at the application level, and the NEV industry needs to accelerate demonstrations of their applications.

NEVs and overseas expansion

From a global market perspective, what position does China’s auto industry, particularly its NEV sector, occupy?

Chinese NEVs are in a leading position globally, in terms of technological advancement, industry chain completeness, and production and sales scale. We are leading in all these areas. However, we should not become complacent and must continue to push forward.

To bring NEV sales to a new high, we must make full use of our two advantages. First, the advantage of having a huge market. China is the world’s largest auto market, to which major multinational car companies attach great importance. Every move we make is closely watched by them. Second, the institutional advantage. Our socialist system allows us to concentrate efforts on major tasks. Once there is a unified understanding, we can act swiftly and accomplish anything.

You are particularly optimistic about NEV startups, what are the main reasons behind your optimism?

The product development concepts, operational management mechanisms, and financing models of NEV startups are more market-oriented and more centered around users.

For example, they must sign bet-on agreements to fulfill commitments made to investors before securing their funding. Investors’ supervision and constraints on the carmakers are fully in place. And typically, venture capitalists focus more on a company’s future development prospects rather than current performance. Even if a company is losing money for a period, as long as it continues to develop, and as long as it has support from stakeholders, it can continue to secure investment.

In 2009, China became the world’s largest vehicle producer for the first time. You said at the time that “China has become a major automobile country but is not yet an ‘auto powerhouse.’” For this, a country needs to have globally competitive enterprises and brands, master core technologies, a large export capacity and significant share of the global market. How far is China from that goal of becoming an auto powerhouse? What must manufacturers do to achieve that goal? 

Relying on NEVs, Chin’s auto industry has made significant progress, but we must be aware that China is far from a strong auto powerhouse. We must double down our efforts to achieve the goal of becoming a strong automobile country by 2035 ahead of schedule.

In terms of technology, our investment in basic research is still insufficient, and we still lag in disruptive technological innovation compared to the world’s advanced level. This is not only a problem in the NEV field, but also a social problem.

China still lacks internationally recognized, well-known auto brands. Pursuit of the high-end market is a long-term goal and a challenge for Chinese brands. The high-end is not just about raising prices and configurations, but also about improving product quality, design, technological innovation, and service experience. Chinese brands still have a long way to go in terms of brand recognition.

Concerning exports, the current geopolitical and economic relations are complex and constantly changing. With the continuous expansion of China’s NEVs in the global market, Europe and the U.S. are highly vigilant and have introduced various trade restriction measures. The potential risks of trade barriers to China’s auto exports are rising.

In the past three years, China’s auto exports have climbed steadily and, in 2023, reached 4.91 million vehicles, surpassing Japan’s 4.42 million units to become the world’s largest auto exporter. However, Japan still leads the world in auto production and sales. Going global is the next development theme for Chinese automakers. How should they proceed and where should they go?

Indeed, exports account for only a small proportion of Japan’s automotive sales, with most being local sales of vehicles made in overseas factories. Overall in 2022, Japanese automakers sold over 20 million vehicles overseas. In comparison, we still have a lot of room for improvement overseas. Chinese automakers must not only focus on exports, but also have long-term plans.

Chinese automotive products are exported to over 200 countries and regions worldwide. We can say we have achieved the goal of going overseas. However, if we only see “going overseas” as opportunistic exporting, we are likely to repeat the mistakes of motorcycle exports to Thailand over a decade ago — engaging in a price war, flooding the market, eventually leading to the demise of many Chinese motorcycle companies, and allowing Japanese rivals to regain their position. Chinese motorcycles are hardly seen in Thailand anymore.

China’s auto industry is growing its global footprint. In recent years, major Chinese automakers have expedited their overseas expansion efforts. SAIC Motor Corp. Ltd. is making key components for NEVs in Thailand; BYD Co. Ltd. has a complete vehicle manufacturing base in Uzbekistan; Chongqing Chang’an Automobile Co. Ltd. has officially announced its overseas strategy; Chery Automobile Co. Ltd. is building a factory in Argentina, and Great Wall Motor Co. Ltd. will start operations of its plant in Brazil in 2025.

Meanwhile, with the growth of NEV exports, Chinese automakers are also investing in building charging and swapping infrastructure and establishing after-sales service systems in overseas markets. This indicates a long-term perspective rather than opportunistic short-term behavior.

Finally, we need to continue to enhance our global competitiveness and strive to achieve “moving up” as soon as possible. China’s NEV industry is steadily improving its capabilities in independent development and industrialization of whole vehicles and key parts. Some companies’ competitiveness has reached the level of developed countries’ auto industries. China’s auto brands are accelerating their strategic transformation as they enter the mid-to-high-end market. A group of Chinese enterprises have strong expertise in core technologies such as batteries, motors, and electronic controls for NEVs, and possess global competitiveness.

In addition to the increase in overseas sales volume, prices are also rising. In 2021, the average price of Chinese auto exports was $16,000 per unit, and by 2023, this figure had increased to $20,000.

Chinese NEV companies are beginning to export technologies to overseas automakers. For example, XPeng Inc. and Volkswagen AG are cooperating in areas such as product platforms and software technology. Could this become a new trend? Considering the global landscape of NEV technology and research and development capabilities, what are the advantages for Chinese companies? How can they improve and consolidate their advantages?

China’s NEV firms have already achieved breakthrough results, such as chips that are sought after by overseas automakers.

Chinese companies account for most of the top-selling NEV companies globally. In 2023, among the top 10 automakers in terms of production and sales volume, six were Chinese brands: BYD, GAC Aion, SAIC-GM-Wuling, Nio, Chang’an Auto, and Geely. In terms of core components, taking batteries as an example, six of the top 10 companies were Chinese in 2023. Contemporary Amperex Technology Co. Ltd. (CATL) alone held 40% of the global market share, with BYD ranking second. As production and sales scale expands, China’s NEV industry chain continues to innovate and make breakthroughs in technology and materials.

In the next step, to consolidate and expand our advantages, we should pay attention to several issues: first, to secure the supply of automotive-grade chips. We must also consider external factors such as U.S. restrictions on China’s semiconductor development. We should leverage the advantages of further opening up the Chinese automobile industry and our large auto market, engage in international exchanges and cooperation, and strengthen the connections between chip designers, foundries, packaging and testing enterprises, and automakers to form long-term cooperation.

Secondly, to jointly create open-source software for intelligent driving operating systems, we should build a technology innovation system combining production, academia, research and application, and accelerate the independent development of safe and reliable intelligent driving operating systems.

Thirdly, we must strengthen the security resources used in batteries. In lithium, nickel and cobalt, China still relies heavily on external resources. Nickel, cobalt and other resources are mainly concentrated in a few countries and these resources have long been monopolized by large multinational companies. Chinese companies have also acquired equities in overseas mines.

Intelligent innovation

What plays the most important role in automakers’ efforts to make intelligent vehicles? How can China win the global race to make vehicles smarter?

The most critical aspect of developing intelligent connected vehicles is safety, which is the premise for the development of intelligent connected vehicles. Unsafe factors involve the limitations of machine equipment and flaws in algorithms, such as issues with map accuracy, or problems where cameras and radars cannot detect objects due to extreme lighting conditions. Some of these issues arise from the inaccuracy of data collected by sensors or inadequate landmark detection capabilities, while others stem from the imperfection of multi-sensor localization algorithms. Of course, there are also human factors, namely the safety of expected functions, which is a specific concern for autonomous vehicles. Ensuring data safety and network security have always been challenges for the automotive industry.

The key to developing intelligent connected vehicles is leveraging strengths and avoiding weaknesses to find a path that features “smart vehicle + vehicle-network interaction + vehicle-road integration,” a technological route with Chinese characteristics that suits China’s national conditions.

China is now far better positioned in terms of policy maturity, market development, technological iteration, commercialization model feasibility and infrastructure construction for developing intelligent connected vehicles.

You have been calling for all parties in the industry to work together to create open-source software for intelligent driving operating systems. However, the reality is that each automaker is developing its own system, and their interfaces are not open to each other. How can we create an open-source system? Whose system should it be based on?

There are already some relatively mature autonomous driving operating systems in China, such as Huawei Technologies Co. Ltd.’s HarmonyOS and AliOS from Alibaba Group Holding Ltd.’s Banma. However, due to various competitive relationships, everyone is going their own way, and it is difficult to coordinate.

Among foreign automakers, Tesla Inc.’s Linux-based full-stack self-developed automotive operating system is not open-source or free, instead it uses the operating system to sell services. Volkswagen and Toyota Motor Corp. are following Tesla to develop their own Linux-based operating systems. In China, new entrants want to showcase their technical capabilities by self-developing full-stack operating systems, while traditional automakers are afraid of losing their “soul” and are also developing their own operating systems, mainly based on Android, and some based on Linux.

Currently, the landscape of automotive operating systems is not set. In the field of intelligent cockpit systems, Android holds a market share of 43%, Linux accounts for about 30%, and HarmonyOS is less than 1%. Can we create an automotive operating system similar to Android in the era of smartphones? That’s my dream. As for how to do it and who will do it, “let the bullets fly for a while.” The key is cross-domain integration and collaborative development.

ChatGPT is leading the global wave of generative artificial intelligence (AI). What impact will this have on the automotive industry? When it comes to training AI models, how do Chinese car companies compete with the international advanced level?

Yes, this round of development led by the American company OpenAI in generative AI has been very rapid, with various large models and application scenarios emerging. I have noticed that iFlytek Co. Ltd. and Huawei are cooperating to develop large models.

AI is both an opportunity and a challenge for domestic automobile companies. Our autonomous driving is based on scenarios designed based on rules, which are then handed over to AI systems to use. It’s like teaching a machine that knows nothing about driving how to drive. Tesla’s self-driving, on the other hand, is based on AI mobile terminals trained on big data, which is like teaching machines how to transform from a novice driver to an experienced one.

Overcapacity and reform

Recently, there have been concerns about overcapacity in the domestic auto industry. According to research by BASF, only 20 Chinese automakers have a capacity utilization rate of over 60%, while 55 firms have less than 50%. How do you view the supply and demand issues in China’s NEV industry?

Overcapacity is actually a general characteristic of a market economy, and there is currently no overcapacity issue in the Chinese NEV industry.

In 2023, China produced 9.587 million NEVs, with a penetration rate of 31.6%. Production is expected to exceed 10 million units this year. An 80% capacity utilization rate would translate to nearly 12.5 million vehicles. In the long run, it may only be considered overcapacity when the production capacity of NEVs exceeds 20 million units. This calculation does not yet account for the increase in market size due to rising household income and the incremental demand brought by exports.

As China’s NEVs grow rapidly, the market size of traditional fuel vehicles is gradually shrinking, with the two growing at the expense of each other. The challenge lies in how to convert excess capacity in fuel vehicles into NEV capacity to effectively utilize existing capacity.

How can China continue to deepen reform and opening up, and promote further development of the NEV industry?

We need to realize that the various problems constraining further development of the auto industry still exist. We need to continue deepening reform, such as reforming all production relations and structures that are not conducive to the development. For example, the new-energy intelligent connected vehicle industry will inevitably require integrated cross-border development, which poses challenges to existing industry management methods.

The NEV industry is a competitive one, and openness is the key to industrial upgrading. On the one hand, we must continue to bring in the best foreign automakers to showcase their skills. At the same time, we must support local enterprises to go out and join hands with other excellent global automakers to offer more choices to the world.

Contact translator Ding Yi (yiding@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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