China's overlapping tech-industrial ecosystems
EVs, batteries, lidar, drones, robotics, smartphones, AI. China's progress across a range of overlapping industries creates a mutually reinforcing feedback loop.
China has developed multiple tech-industrial ecosystems that overlap in terms of the firms and technologies involved. China doesn’t just have a smartphone industry or a battery industry or an electric vehicle industry. It has all of these industries and more. China’s strength across multiple overlapping industries creates a compounding effect for its industrial policy efforts.
Let me first explain what I mean in general and then look at the specific case of China’s EV industry. If you’re trying to develop a target industry, it helps to have the technology and manufacturing capacity in surrounding industrial domains. To expand on an analogy from Dylan Patel on ChinaTalk, industrial policy is like a jigsaw puzzle. The more pieces you already have in terms of technology and domestic manufacturing capacity, the closer you are to filling in the remaining gaps. And if you’re already strong in multiple overlapping industries, then this creates a mutually reinforcing feedback loop that further strengthens your position in all of these connected industries.
Put another way: China has created a system of interlocking industries. As China becomes stronger in some industries, this tightens its grip on others. What are the mechanisms by which overlapping tech-industrial ecosystems create this compounding or spillover effect?
Supply: Having existing domestic suppliers in upstream industries can make it easier to source parts and work directly with suppliers to modify specifications to suit industry needs.
Demand: Having an existing set of domestic buyers in downstream industries can provide a ready source of market demand and industry revenue. If downstream players are unwilling to buy domestically, they can be pushed to do so with policy measures, such as tariffs on foreign suppliers and local content requirements.
Technology: Technical knowledge and manufacturing know-how can be useful across industries. Investments in R&D and manufacturing techniques in one industry can have returns across other related industries. For example, knowledge of polysilicon production is useful for photovoltaic cell and semiconductor chip manufacturing. Being able to make inverters is useful for solar, EVs, railways, and telecom equipment.
Scale: If you have a product that’s an input for multiple industries, then having all of those industries domestically allows for greater economies of scale for that product. For example, China’s lithium battery industry can enjoy even greater economies of scale by supplying to China’s consumer electronics, EV, and energy storage industries.
Chinese EVs: building on overlapping industries
China’s success with its EV industry today is really the result of China’s strength in a range of overlapping industries, some of which “grew up” together with China’s EV industry. The flip side of this is just as important. China’s focus on its EV industry is not just about selling cars. It’s about using a key industrial node to push progress across a whole network of connected industries—the way that railroads were seen historically as driving broader industrial development.
Lithium batteries: China’s existing strength in manufacturing lithium batteries at scale for consumer electronics, such as computers and smartphones, gave Chinese battery makers like CATL and BYD an edge in later developing EV batteries.
Smartphones and consumer electronics: In addition to lithium batteries, China’s smartphone and broader consumer electronics industry provided Chinese EV makers with suppliers and know-how for making touchscreen displays, electronic control systems, and other related electronic hardware. Xiaomi is the most direct example of a smartphone and smart-home appliance maker rapidly parlaying its consumer electronics chops into EV success.
Traditional auto industry: Since the late 2000s, China has had the world’s largest traditional auto industry, including auto parts manufacturing. This provided Chinese EV makers with an existing supplier ecosystem for everything from braking and air conditioning systems to car seats and mirrors.
Industrial commodities: As the world’s largest producer of steel, aluminum, petrochemical products, and other industrial commodities, China has many domestic firms that can supply these inputs for the EV industry. (I’ve previously written about how these heavy industries in China support its clean tech industries more generally.)
Electric motors: China’s EV industry benefited from China’s existing industrial knowledge in AC motors, servo motors, and inverters. Early AC motors and motor control units (MCUs) for Chinese EVs were made by domestic firms like Shenzhen-based Inovance (aka “Little Huawei,” founded by former Huawei engineers), Shanghai-based Edrive, Beijing-based JJE (supplier to Xpeng), and Hefei-based JEE. United Automotive Electronic Systems (UAES), a joint venture with Bosch originally formed in Shanghai in the 1990s, has also played a key role as a motor and MCU supplier.
Lidar and other sensors: Chinese sensor firms such as Hesai, Robosense, and even DJI’s Livox provide lidar, radar, cameras, and other sensors as well as sensor fusion systems to integrate and process all this data that enable Chinese EVs to have advanced driver-assistance systems (ADAS).
Industrial robots and automation: China’s longstanding experience with using industrial robots, particularly in its traditional auto industry, gives Chinese EV makers an existing knowledge base for using similar industrial robots for EV manufacturing. China previously relied on foreign robot makers such as ABB and Fanuc but is now increasingly using domestic robot makers such as Inovance and Shenyang-based Siasun. These Chinese industrial automation companies also supply robotics solutions for China’s shipbuilding, solar, wind, electronics, food, medical, textile, and chemical industries, to name just a few.
Industrial coevolution
In a number of cases, you have what I call “industrial coevolution” where two or more related industries develop together in an iterative, two-way process. This is happening now with China’s EV and battery industries, which makes sense given how deeply dependent these two industries are on one another. China’s EV industry leveraged the existing scale that China’s battery manufacturing industry enjoyed, which in turn gave China’s battery industry even more production volume and manufacturing experience. This is also happening with China’s battery industry and its solar industry where solar plants are increasingly being deployed with integrated battery energy storage systems (BESS).
Industrial coevolution can also happen across multiple industries simultaneously: for example, China’s lidar, EV, drone, and autonomous vehicle industries. And the co-development of this nexus of industries can have spillover effects into other industries, such as the proliferation of new kinds of autonomous equipment in agriculture, mining, construction, and energy. At the same time, if there’s a weak link, China’s central government (particularly the Ministry of Industry and Information Technology) might step in to support the lagging sector, even at the expense of connected industries. This is happening now with China’s push to get its automakers to reduce their heavy reliance on foreign automotive semiconductor chips and switch to domestic alternatives.
Tech-Industrial Convergence
Lastly, part of the reason why China is getting stronger across multiple overlapping tech-industrial ecosystems is because of a general convergence across these domains. Technologies and product categories that were previously viewed as distinct and separate—think telephones and cars—are increasingly merging in their underlying hardware and software—think smartphones and EVs or even autonomous vehicles. On the software side, you have operating systems, digital platforms, of course AI and the ability to process vast amounts of data and rapidly turn this into action. On the hardware side, you have a convergence of interrelated technologies including lithium batteries, electric motors, cameras and sensors, wireless communication, and of course semiconductor chips.
As a result, Chinese tech companies are increasingly becoming tech Swiss Army knives, starting in one industry but then quickly branching out into a range of adjacent tech domains: smartphones, EVs, autonomous vehicles, generative AI, drones, robotics. You have smartphone makers like Xiaomi jumping into EVs, drone makers like DJI jumping into lidar, EV makers like BYD jumping into semiconductors or Li Auto jumping into humanoid robots, and traditional internet companies like Baidu jumping into autonomous vehicles. These days, it’s almost strange if you’re a Chinese tech or electronics company and you don’t have your own cutting-edge large language model. Chinese tech companies used to model themselves after Google, Apple, or Facebook, but now they look more like Elon Musk’s Tesla/xAI.
And of course, there is the ultimate Chinese tech generalist, at the center of so many of China’s tech-industrial ambitions: Huawei.
Well written and interesting! I always like to point out that these features of China’s tech-industrial ecosystems are remarkably similar to the decentralized yet deeply interconnected economic-scientific structure of the USA during the Old Republic. Before the rise of centralized financial, industrial, and scientific control in the latter 20th century, the USA's economic and scientific ecosystem was built around diffusion, heterogeneity, and decentralized redundancy where industries coevolved within states and local economies but were all deeply linked and overlapped within a national whole. Manufacturing, science, engineering, industries of all sorts, and finance developed in tandem, reinforcing one another much like China’s interlocking industries. Just as China’s EV industry benefits from its strengths in batteries, electronics, and industrial automation, early American industrialization saw railroads, steel, and machinery industries grow together, each supporting and accelerating the development of the others. This mutual reinforcement allowed for widespread innovation and competition, rather than the stagnation that often comes with monopolistic centralization. And the Old Republic’s economic model was characterized by distributed financial and policy mechanisms that enabled local industries to flourish, mirroring China’s strategic use of industrial policy to nurture overlapping sectors. Although Xi and the powerful special interest groups around him in the national center have been working overtime to politically and economically centralize China so this may be at risk of degrading...
Wow, this article is a revelation. I’m not qualified to judge its validity, but the argument makes sense and I learned a lot. Well done!