Beijing needs another intervention to slash industrial excess

Financial Times Europe9 Jul 2026Edward White edward.white@ft.com

In the late 1990s and early 2000s, Zhu Rongji, a cha ris matic Chinese premier, tookthe scythe to large swaths of the coun try’s polit ic ally power ful state-owned enter -prises. Under Zhu’s slo gan of “zhua da, fang xiao” or “grasp the large, let go of thesmall”, Beijing retained its grip on stra tegic indus tries while relin quish ing con trolof a vast sea of smal ler com pan ies and factor ies. The cuts ripped through China’snorth-east ern rust belt. Thou sands of mines, steel mills and other indus trial siteswere shut for good. An estim ated 30mn to 40mn work ers lost their jobs.

The pro cess was deemed pain ful but neces sary: not only in set ting up China’s acces -sion to the World Trade Organ iz a tion in 2001, but in free ing Beijing from sup port -ing uneco nomic indus tries.

Dec ades on and indus trial over ca pa city again looms large over China, the world’sbiggest man u fac tur ing base.

Over the past 15 years, as China’s share of global man u fac tur ing surged to aroundone-third, the share of loss mak ing busi nesses jumped from about 10 per cent in2010 to nearly 25 per cent last year, accord ing to the MERICS China Over ca pa cit iesMon itor. This dynamic exists from steel and cement to cars, com puter chips androbots.

For example, domestic car sales last year totalled 23.9mn against estim ated pro duc -tion capa city of 45mn to 50mn. Sales are highly con cen trated among a clutch oflead ing com pan ies.

Accord ing to HSBC, more than 70 per cent of EV sales — includ ing plug-in hybrids— are being soaked up by 10 brands, leav ing 47 oth ers jost ling for the remainder. Inthe shrink ing mar ket for pet rol and diesel cars, 10 brands have about 70 per cent ofsales and 73 oth ers com pete for the rest.

In inter views and private meet ings with dozens of auto exec ut ives, industry ana -lysts and eco nom ists over recent months, no one seems clear on the path Beijingwill take.

Until recently, state res cues of fail ing auto com pan ies were expec ted — as was illus -trated by the nearly $1bn bail out of Nio in 2020. However, one Chinese auto exec ut -ive, who spoke on con di tion of anonym ity, said cash-strapped local gov ern mentswould struggle to do this today.

Keyu Jin, a pro fessor at The Hong Kong Uni versity of Sci ence and Tech no logy whodoc u mented the Nio res cue in her book, The New China Play book, said offi cials inChina were “keenly aware” of the per vas ive ness of low profi t ab il ity and over ca pa -city, and they know that “not doing any thing about it is also not a long-term solu -tion”. Jin expects that in sec tors with “sig ni fic ant expert ise and also global dom in -ance” — such as EVs — local gov ern ments will instead encour age con sol id a tion,with an echo of “zhua da, fang xiao”.

“Mer gers and acquis i tions — integ ra tion — can still pre serve the factor ies and thejobs but lead to a sig ni fic ant reduc tion in the num ber of brands and com pan ies,”she said, adding that the pro cess would lead to an “oust ing of the weak andstrength en ing of the strong”.

Beijing’s “anti-invol u tion” cam paign against excess ive domestic com pet i tion isshow ing some signs of suc cess in sta bil ising prices and improv ing the treat ment ofsup pli ers.

But the more sig ni fic ant release valve has been a push into over seas mar kets.Chinese auto exports have surged more than 60 per cent year on year so far in2026, to more than 4mn cars by the end of May, accord ing to data from Auto mobil -ity. Some local industry fore casts pre dict exports could exceed 10mn cars this year,up from 7.1mn last year.

But exports are not a long-term pan acea for the coun try’s indus trial excess. Againsta back drop of rising pro tec tion ism, Chinese com pan ies are buy ing and build ingfactor ies every where from Ger many, Spain and Hun gary to Brazil, Thai l and and theUK.

“At a cer tain point in time, the music’s going to stop in China,” said vet eran Chinaauto ana lyst Tu Le, of Sino Auto Insights. “That’s something that the cent ral gov ern -ment is going to have to fig ure out . . . I think that bill is going to come due withinthe next 18 months.”

China’s premier Li Qiang told the “Sum mer Davos” forum that China’s com pet it ive -ness was down to tech no lo gical innov a tion, dis miss ing by implic a tion con cerns thatsub sidies were the driv ing force.

However, unprofi t able indus tries will not be able to sur vive forever, even in China.Nor is it likely that the world will simply soak up an end less sup ply of Chinese hard -ware. Yet — as far as we know — there is no Zhu-like lieu ten ant close to China’spower ful leader Xi Jin ping advoc at ing for the kind of sweep ing reforms seen