Fangmian says: How does Xi Jinping's industrial model destroy China's economy? Causes China's great deflation? A 10 billion yuan subsidy creates a global electric vehicle leader, but profits plummet to 2008 levels! Electric vehicles | Solar panels | New energy | Semiconductors

Toronto Fanglian posted a video: Fanglian says: How does Xi Jinping's industrial model crush the Chinese economy? Causing a massive deflation in China? Trillions in subsidies make electric vehicles the global number one, yet profits fall back to 2008 levels! Electric vehicles | Photovoltaics | New Energy | Chips

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Since Xi Jinping came to power, China's economic condition has fallen into a situation completely different from that under Deng Xiaoping, Jiang Zemin, and Hu Jintao. The economic growth rate during Xi's era is far lower than during the periods of Deng, Jiang, and Hu, whose average growth rate was at least 9.4%, while the highest rate during Xi's term was only 6%.

Moreover, under Xi's leadership, China has fallen into an unprecedented deflation. All of this stems from Xi adopting economic and industrial policies that are fundamentally different from those of Deng, Jiang, and Hu. This episode will explore Xi's governance in detail, analyzing how his economic and industrial policies catalyze the Chinese economy.

Analyzing Xi's industrial model, the best example is the current Chinese electric‑vehicle sector. The Chinese Communist Party (CCP) began large‑scale subsidies for electric vehicles around 2015, and over the years, with strong government promotion, the cumulative direct and indirect subsidies in the EV industry are estimated to have reached 3 trillion RMB.

Under Xi's policies, these subsidies have shown significant effects. The Chinese EV industry has succeeded in both domestic and overseas markets. Domestically, joint‑venture brands have been hit hard, with July sales dropping 44.1%; former automotive giant Ford has been repeatedly beaten back in the Chinese market, even withdrawing from China.

Abroad, Chinese EVs also stand out. In Thailand, Chinese car sales have surpassed Japan, breaking the long‑standing dominance of Japanese cars in the Southeast Asian market. In Australia, Chinese car sales also exceed Japan, becoming the largest source of automobile imports. In Latin America, Chinese EVs dominate the market.

Overall data also confirm this. According to the China Association of Automobile Manufacturers, in the first half of this year Chinese automobile exports reached 5.096 million units, a year‑on‑year increase of 65.3%, an astonishing growth rate.

However, if the story ends here, the Chinese EV industry would seem like just a glorious tale. Reality is not so simple. If this were the whole truth, China should not be experiencing deflation now, and GDP growth should not be below 5%. The truth often hides beneath the glittering surface.

Behind the flashy export figures lies a sharp drop in domestic car sales. In stark contrast to the surge in overseas sales, in the first half of 2026 domestic car sales in China were only 9.92 million units, down 21.1% year‑on‑year.

This decline even exceeds the 16.6% drop during the 2020 pandemic lockdown. It shows that the reduction in consumer purchasing power this year has caused a sales decline far beyond the impact of the pandemic. Yet this is not the most serious problem facing China's automotive sector.

The second, more severe issue is the drastic decline in profit. While Chinese car sales have fallen, profits have fallen even more sharply. The profit margin for complete vehicle manufacturing in China is now only 1.5%, whereas a few years ago it was around 6%. It should be noted that this 1.5% margin still includes some profitable fuel‑vehicle manufacturers and joint‑venture brands; otherwise, the overall margin would already be negative.

A margin of 1.5% means the Chinese automotive industry is close to being destroyed. Despite rapid sales growth, total profit fell from 137 billion RMB in the first half of 2021 to the current 39.4 billion RMB, a decline of over 70%.

A half‑year profit of 39.4 billion RMB is comparable to the level during the 2008 financial crisis. This means that under Xi's policies, Chinese car sales have increased by 50% compared with 2020, but profits have reverted to 2008 levels.

The current 1.5% vehicle profit margin is not the end point; it could drop to zero or even become negative in the future. This is mainly because Chinese automobile production capacity is severely overcapacity. According to reports, in 2023 Chinese passenger‑vehicle capacity reached 55 million units, and now it is at least 60 million, possibly up to 70 million.

However, actual production is about 34.4 million units, giving a capacity utilization rate of at most 50%, perhaps as low as 40%. More than half of factory capacity sits idle, mainly in domestic electric vehicles.

Even BYD’s capacity utilization has long been only about 60%, dropping to 39.7% in February this year. By comparison, Toyota’s utilization is about 90%, and Nissan’s around 60%.

China’s severe overcapacity, combined with declining consumption, means a 1.5% profit margin is far from sustainable. The root cause is that Chinese automakers build capacity not based on market demand but on the level of government subsidies.

Since 2015, Chinese automobile capacity has surged, with the government providing up to 90% of factory construction subsidies for EV makers. This massive government investment created overcapacity while also driving rapid development of the Chinese EV industry.

Xi's industrial policy model is: the government heavily supports a particular industry, massive funds flow in, leveraging Chinese ingenuity and hard‑working spirit to quickly produce quality products. At the same time, the excess funds generate excess products, leading to price cuts, profit crashes, wage pressure on employees, and ultimately reduced consumer purchasing power, creating deflation.

This model is not limited to EVs; it also appears in the photovoltaic sector. China’s photovoltaic industry holds about 90% of the global market share, yet it also suffers from overcapacity, resulting in continuous industry losses.

In contrast, sectors not heavily favored by Xi, such as Douyin and DJI, have been able to generate huge profits when operating outside his focus.

Xi's industrial policy can make a single industry lead in sales or even monopolize a market, but it has a negative impact on the overall economy. The EV example shows that while sales rise, profit drops sharply, weakening the positive contribution to the economy and even becoming a drag.

This “cabbage‑ization” effect is not confined to domestic markets; it also affects international relations. Xi's policy creates a “negative‑sum game,” where the United States loses, Europe loses, and China also loses. The photovoltaic example shows that China defeats rivals with subsidies, yet its own industry ends up losing money.

The model also has a spillover effect. If China’s balloon industry continues to develop, it could enter a similar “cabbage‑ization” state, causing global related‑industry profit collapses and potentially sparking trade frictions.

The automotive industry differs from photovoltaics; it is a mature sector involving the economies and employment of multiple developed countries. The CCP’s automotive policy could prompt other nations to impose high tariffs and could escalate trade frictions into full‑scale boycotts.

Recently, relations between China and major countries such as the United States, Japan, and the EU have sharply deteriorated. This is not because they do not want China to rise, but because Xi's industrial policy has created this situation. Under such policies, Western countries cannot maintain a normal attitude toward China.

Xi's industrial policy not only causes deflation in some Chinese industries but also triggers diplomatic explosions, affecting the entire economy. His policy lacks deep thinking, oversimplifying the notion that good products and money‑throwing alone can generate profit, while ignoring business models, market environments, and other critical factors.

Under this model, bankers may enjoy the best times, but ordinary people see their quality of life decline. As long as this mindset does not change, the Chinese economy will continue to decline and will not escape deflation.