China’s economy is in trouble. After seeing a video claiming much of China’s Electric Vehicle industry was built on subsidies that are now gone, I’m forced to ponder the legacy of these policies. It showed a factory in Chongqing, China, where a huge number of clean energy vans sit abandoned, covered in a thick layer of dust. This rendered their original appearances unrecognizable. Recently, aerial footage has also surfaced of vast grassy fields in Hangzhou littered with thousands of clean energy vehicles. This brings into question how this occurred.
Subsidies are more direct and worse than creating incentives or giving encouragement. Subsidies are a transfer of wealth. Without a doubt, many “false booms” are the result of scams created through subsidies. While it could be argued subsidies have moved the production and innovation in the EV industry forward, it brings up other issues. A huge question is whether this has created a situation where other governments have strayed down the same wrong path in an effort to spur growth. This possibility should not be discounted. Consider for a moment that maybe EVs are not the answer to a more sustainable world.
The immense waste and the environmental problems and pollution resulting from improperly placed subsidies and regulations should be addressed. The big problem China now faces is that advanced economies are complex. When they start to shut down reversing the trend becomes difficult due to contagion. It is hard to build a machine when even a few parts are unavailable. This means the trend in China will not be easy to reverse.
China is now seeing the result of subsidies backfiring and the toll of reverse leverage is devastating both investors and its economy. After looking at the mess China has made out of building ghost cities, we must turn our attention to population control and demographics. China’s poorly thought-out policies on these subjects feed into its current problems. The ramifications we are seeing play out are often referred to as unintended consequences. This is something we see far too much of.