Chinese President Xi Jinping has criticized local governments for concentrating on a limited number of emerging industries, such as AI, computing power, and new-energy vehicles.

Xi raised concerns about the trend of provinces developing the same industries.

He warned that it could lead to overcapacity and increased price competition.

These comments reflect ongoing efforts by policymakers to address related challenges.

A recent State Council meeting, led by Premier Li Qiang, committed to reducing “irrational competition” in the EV sector.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Local government competition creates industrial overcapacity problems

Xi’s concern about provinces duplicating efforts in AI, computing, and EVs reflects a documented pattern in China’s economic governance structure.

Studies across 272 Chinese cities show that economic competition between local governments often leads to negative outcomes for sustainable development, with officials prioritizing short-term GDP growth over coordinated industrial planning 1.

This competitive dynamic explains why China is now facing serious overcapacity issues, particularly in new industries that Beijing has designated as strategic priorities like electric vehicles.

The pattern has historical precedent. Similar overcapacity problems previously emerged in traditional sectors like steel and aluminum, primarily driven by state support and excess capital seeking investment opportunities 2.

Xi’s rare public criticism signals growing central government concern that provincial competition is now undermining national economic objectives, creating price wars and deflation that damage China’s broader industrial strategy.

2️⃣ “High-quality development” marks a strategic policy shift

Xi’s comments reflect a broader transition in China’s economic approach from quantity-focused growth to what he terms “high-quality development.”

Since 2022, Xi has consistently emphasized technological self-reliance and innovation as solutions to China’s economic challenges, prioritizing security and reduced foreign dependence over immediate consumption stimulation 3.