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Comment by culi | Hacker News Reader

Anytime China targets an industry we get a situation where basically every major city has their own brand that they're backing. There's a lot more competition in China compared to western markets that tend to be dominated by a few major players. There's over 100 EV brands in China today, e.g. BYD (Shenzhen), NIO (Hefei), GAC Aion (Guangzhou), and SAIC (Shanghai)

There's been a lot written about China's "Fiscal Federalism"

https://www.sciencedirect.com/science/article/abs/pii/S01475...

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Most of those pronounces have greater than 50 million people. Anhui has 60 million, guangdong has 127 million. Shanghai only has 26 million people as a city. The federalism exists because the numbers China is working with are huge. It’s not some small podunk town in North Carolina deciding to make cars, it’s a province on par with that have a populous country. We can’t judge China based on a much smaller scale of US states and cities.

The Chinese provinces and cities are competing aggressively with each other, both the local governments who provide cheap loans (largely funded by profits from other corporate loans, as China has much lower income taxes than the US) and companies also compete aggressively for dominance both locally and globally.

In the US you usually have 2-3 giant companies who are pets of the federal government and get tax breaks and subsidies if they make 'jobs' in particular states, particularly where useful congressmen live. It's a far more centralized market even though it has little direct government capital investment.

Old legacy companies being propped up in the name of national interests while they slowly become more and more detached from the global market.

On top of that China allowed heavy investment in infrastructure and real estate instead of interfering in it, so everything from property to energy costs are cheaper. Making cost of doing business cheaper.

Those giant companies in China are supported by the cities/provinces. It is just that they are comparable to not even small countries, the central government doesn't need to create champions for consumer goods, more local governments can do that just fine. SOEs are also mostly zombies in China, it should be very telling that BYD is not an SOE; we aren't even talking about any of the SOEs FAW Group, Dongfeng Motor, Changan Automobile, SAIC Motor, BAIC Motor, and GAC, who are still more known for their JVs.

They usually go through a major, government driven consolidation phase to establish a handful of national champions. I would bet we’ll see the same in EVs. This ensures scale by which they can dominate the global industry-an explicit target of the CCP.

Very good point. People often ignore how important monopolies are to high stock prices. A monopoly can extract more wealth from the market than if there's strong competition.

A competitive market destroys revenue potential, essentially forcing companies to constantly reduce margins or innovate. Both of which are very good for the consumer, but these companies need to run harder to stay in the same place.

I've heard that for example, NIO is facing fiscal troubles, since their business model was that they sell somewhat nicer cars for more money, however everything they come out with tends to be quickly incorporated by the competition at a lower price point.

I also want to add that this internal competition is why stories about huge government subsidies is bull - there's a huge amount of domestic competitors at each other's throats, and the Chinese government certainly doesn't want to pick winners, so the only way to subsidize cars is to subsidize demand, which means that all those subsidies are available to foreign companies doing business in China.

Weren’t US industries like this before the huge consolidation we saw towards the end of the 20th century?

Possibly, I'm not very familiar with the US history. But this is a recurring pattern in China as well. It's called the "shakeout phase" and we saw it with bike sharing as well as the solar industry. Every industrial sector backed it own company and after a few clear leaders emerged there was a massive consolidation phase. This is a purposeful effort by China and is driven by specific policies, increased regulation, and reduction in cheap financing options. It's essential for them to minimize subsidization and combat involution or counterproductive competition. It's also why you should always ignore articles critical of china's "overcapacity". Overcapacity is a planned phase of their economic strategy to capture an industry. And, so far, it's been quite effective

I have no doubt the same will happen with EVs. But that's another reason to hold off on investing in any specific Chinese company rn.

How they do financial bailouts by printing their own debt-free money and having fine-grained control of the banking system is also something that the west doesn't do.

Chinese cities can't print their own money.

> How they do financial bailouts by printing their own debt-free money [...]

What do you mean by that?

> [...] and having fine-grained control of the banking system is also something that the west doesn't do.

Giving bureaucrats even more levers to pick winners badly isn't a good idea. There's a reason China isn't as rich as the west.

Non-performing loans of state-owned entities get bought by asset management companies (AMCs) with AMC liabilities. People's Bank of China liquifies AMC Liabilities so the banks keep lending.[1] AMCs often then can't pay because the state-owned entity isn't able to pay on the loan it bought. They then get bailed out by the Ministry of Finance, but the actual source of funds inside the government is difficult to discern [2].

[1] https://www.rba.gov.au/publications/bulletin/2024/apr/chinas... [2] https://newbagehot.yale.edu/docs/china-1999-asset-management...

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