From subsidies to surplus: How China's car boom spiralled into oversupply

Inside China's spiralling auto industry crisis is the problem of surplus. Factories are churning out more cars than buyers want, leading to heavy discounts and abandoned vehicles

In a world where millions dream of owning a car, a mall showroom has become a spectacle of discounts. Here, thousands of new vehicles are lined up with jaw-dropping discounts: Audis at half price, Chinese SUVs at nearly 70 per cent off. It feels like a buyer’s paradise — but in reality, it reflects a deeper crisis gripping China’s auto industry, news agency Reuters reported. 

The showroom, located in China’s Chengdu, is run by Zcar, a bulk-buyer that scoops up unsold cars from automakers and dealerships. It thrives because China has too many cars. Years of government subsidies and policies pushed automakers to expand aggressively, aiming to dominate the global auto market and lead in electric vehicles (EVs). 

 

That goal was met and exceeded. Now, overcapacity has left automakers and dealers struggling to survive. Cars are being sold at massive discounts, repackaged as “used” despite never being driven, or shipped overseas at bargain rates. Some end up abandoned in car graveyards.   

Government push backfires

Since the 1990s, Beijing has treated carmaking as a “strategic industry”. Local administration offered cheap land and subsidies, demanding production quotas in return. Automakers focused on meeting those quotas rather than consumer demand. 

The Reuters report quoted Rupert Mitchell, an Australia-based commentator who once worked at a Chinese EV startup, as saying, “When there is a directive from Beijing that this is a strategic industry, every provincial governor wants the car factory.”  “Ultimately, what happens is that it makes the existing auto sector double down on investment.” 

The result: China has factory capacity to build twice the number of cars it sells. EVs multiplied, gasoline car demand collapsed, and hundreds of brands now crowd the market.

Dealers under pressure

Dealers are among the hardest hit. A survey found just 30 per cent of them are profitable. Many slash prices below cost or register cars as “sold” to claim bonuses from automakers. Unsold vehicles are funnelled to grey-market traders such as Zcar, who livestream discounts on platforms such as Douyin, China’s version of TikTok. 

“The market will die!” warned a dealer group in China’s Henan, urging automakers to match sales targets with real demand.   

 

Winners, losers and ‘zombie’ cars

A few big players, such as BYD and Geely, are still expanding, backed by local governments. But dozens of small EV startups are collapsing. Analysts predict only a handful of the current 129 brands will survive by 2030, Reuters reported. 

Meanwhile, thousands of unused cars gather dust in lots, auction sites, and even villages. Some are resold at a fraction of their original price. 

The oversupply does not just threaten China’s auto sector, which accounts for about a tenth of its GDP. It is also shaking foreign rivals. Chinese brands now outsell global names at home, while Europe fears an influx of cheap imports. The US, citing unfair competition and security concerns, has largely shut its doors to Chinese cars, Reuters said. 

For now, China’s carmakers keep moving forward, even at a loss. As one truck executive told Reuters, “It’s like riding a bicycle: As long as you keep pedalling, you might feel exhausted, but the bike stays upright."