Industrial Policy Without Illusions: What China’s EV Boom and Aviation Struggles Really Tell Us

Trustee Chair in Chinese Business and Economics  >  Trustee China Hand 

Having left behind self-indulgent notions of China’s economic model as irredeemably flawed and incapable of innovating, the conversation among China-watchers is increasingly swinging toward the opposite extreme: alarmism from critics and infatuation by (grudging) admirers. As Chinese exports surge and firms climb the global value chain, a growing chorus of commentators is urging the U.S. and its partners to copy and reverse China’s industrial playbook. 

However, as detailed in the recent Trustee Chair report The Power of Innovation: The Strategic Value of China’s High-Tech Drive, a closer look at China’s innovation record introduces much-needed nuance. China’s experience shows that industrial policy’s record is uneven, with both amazing successes and huge disappointments and waste. Two industries illustrate this contrast particularly well: electric vehicles (EVs) and commercial aviation.  

China’s EV success was neither inevitable nor the result of a single master plan. In fact, it emerged despite earlier failures. For decades, Beijing sought to build a competitive auto industry through joint ventures between state-owned enterprises (SOEs) and foreign automakers. Rather than enabling technology transfer, this model entrenched dependence on foreign brands and internal combustion engine (ICE) technology. The breakthrough came only after a series of strategic shifts. 

First, private firms entered despite regulatory barriers. Companies such as BYD, Geely, and Great Wall proved nimbler than SOE incumbents, forcing policymakers to adapt. Second, Beijing deliberately pivoted away from ICE vehicles toward new energy vehicles (NEVs), embracing electrification as a technological leapfrog. This shift aligned industrial upgrading with broader national objectives – reducing oil dependence and air pollution – avoiding head-on competition in a mature technology with consolidated incumbents. 

Third, policy support scaled dramatically. Between 2008 and 2023, China’s EV sector received at least $230 billion in state support through subsidies, tax exemptions, infrastructure investment, procurement, and regulation. Crucially, this support targeted both supply and demand, pairing R&D incentives with measures such as restrictions on ICE vehicles or generous consumer rebates. Fourth, a new wave of entrants with roots in the information and communications technology (ICT) industry – such as Xiaomi, NIO and XPeng – injected greater competition and experimentation, pushing advances in manufacturing processes, software, battery management, and autonomy. 

The result has been transformative. As Figure 1 shows, China’s EV output has grown dramatically over the past decade and now amounts to over 20% of total global passenger car production. Chinese firms also dominate their domestic EV market, have leapfrogged hesitant foreign competitors and account for a growing share of global exports. 

Yet, even in EVs, success has been uneven and costly. Subsidies attracted hundreds of firms, encouraged overcapacity, and generated disruptive spillovers abroad. Figure 2 captures this dynamic: as domestic consumption struggles to absorb a rapidly expanding industry, Chinese EV makers are turning increasingly to export markets – demonstrating that industrial policy can accelerate change, but often in messy, distortionary ways.  

Commercial aviation offers a starkly different story. Despite decades of political backing and investment, China has failed to produce a globally competitive commercial aircraft. From the abandoned Y-10 project to the creation of COMAC in 2008, progress has been slow, delayed, and heavily dependent on foreign technology. The flagship C919 remains reliant on Western parts, while production and delivery volumes lag far behind Boeing and Airbus. 

This outcome is not due to neglect. China has a large aviation manufacturing base, extensive R&D, and one of the world’s largest aviation markets. Rather, the sector’s failure highlights the limits of state-led innovation in technologies characterized by extreme complexity, low production volumes, and stringent safety regulation. Unlike EVs, commercial aircraft do not benefit from rapid, iterative learning through mass deployment. Mistakes are costly, feedback loops are slow, and incremental progress depends on decades of tacit knowledge. 

Institutional factors matter as well. Aviation remains dominated by large SOEs embedded in the military-industrial system, with rigid hierarchies and limited openness to foreign expertise. Moreover, technology transfer has been tightly constrained, both by Western export controls and by China’s own governance structures.  

The contrast between EVs and aviation yields a clear lesson: industrial policy works best when it aligns with sectoral realities. China succeeded in EVs by embracing disruption, enabling competition, and targeting an emerging technology where international incumbents were hesitant. It failed in aviation by attempting to conform to an entrenched global industry dominated by scale, complexity and tacit knowledge. 

For policymakers, China’s experience shows that there is no silver bullet, only large, uneven bets, some of which pay off, and many of which do not. 

Related Trustee Chair Activities 

Scott Kennedy, The Power of Innovation: The Strategic Value of China’s High-Tech Drive, CSIS Report, March 2, 2026. 

Event: “China’s Great Tech Leap Forward and the Implications for the United States,” March 2, 2026. 

Ilaria Mazzocco and Ryan Featherston, Wins and Losses: Chinese Industrial Policy’s Uneven Success, Big Data China Feature, November 19, 2024. 

Scott Kennedy, “The Chinese EV Dilemma: Subsidized Yet Striking,” CSIS Trustee Chair Blog, June 20, 2024.  

Scott Kennedy, "China’s COMAC: An Aerospace Minor Leaguer," CSIS Trustee Chair Blog, December 7, 2020.