Local Clusters and Industrial Policy: New Automotive Geography of Electric Vehicle Sector in China

Keywords:

Abstract:

The Chinese electric vehicle (EV) sector exhibits a pattern of spatial agglomeration reminiscent of the traditional internal combustion engine (ICE) automotive industry. This paper explores the structural characteristics of these EV clusters and the role of local industrial policy in shaping their dynamics. Leveraging theories on industrial policy and industrial heritage, we examine how local governments drive the transformation of the automotive industry towards electrification and digitalisation, while addressing the challenges of integrating the legacy of ICE clusters.

I. Introduction
The rapid growth of China’s EV sector has led to the emergence of distinct industrial clusters, characterized by their focus on electrification and digitalisation. These clusters, supported by strong local government policies, are redefining the geography of the automotive industry. This paper seeks to understand the structural characteristics of these clusters and the influence of local industrial policies in their development, while situating this analysis within broader theoretical frameworks of industrial policy and industrial heritage.

II. Theoretical Perspectives
1. Industrial Cluster
Industrial clusters are groups and networks of interdependent firms, knowledge-producing institutions (universities, research institutes, technology-providing firms), bridging institutions (e.g. providers of technical or consultancy services) and customers, linked in a production chain which creates added value together. For this paper, our focal point is about the internal structural characteristics of clusters all along the complex EV sector.

2. Industrial Policy
Industrial policy refers to government-led initiatives aimed at shaping the development trajectory of specific industries. Theories emphasise the role of policy in fostering innovation, reducing market failures, and creating competitive advantages. In the context of EV clusters, local governments in China act as planners, investors, and lead-users, using tools such as subsidies, capital participation, and infrastructure development to promote cluster formation.

3. Industrial Heritage
Industrial heritage explores the influence of historical industrial structures on contemporary development. In the automotive sector, ICE clusters provide a foundational base for new EV clusters, influencing their spatial and organizational dynamics. Theories of path dependence highlight how existing capabilities, networks, and knowledge from ICE industries can facilitate or constrain the development of EV clusters.

III. Research Questions
1. Cluster Geography: Where are the major EV clusters located, and what are their key characteristics (scope, size, competitiveness, main companies)?
2. Industry Structure of Cluster: What is the internal structure of these clusters in terms of component segments or sub-sectors, such as battery manufacturing, intelligent and connected vehicles (ICVs), or OEM?
3. Policy Dynamics: What policy tools are used by local governments to support EV cluster development, and how do these tools influence cluster dynamics?
4. Industrial Heritage: How do new EV clusters relate to existing ICE clusters? To what extent are EV clusters built upon the legacy of ICE industries?

IV. Methodology
This study employs a mixed-methods approach, combining qualitative analysis of policy documents and case studies with quantitative data on cluster performance. The focus is on key EV clusters in China, analysing their development trajectories and the role of local industrial policies.

V. Preliminary Findings
1. Cluster Characteristics
- Geographic Distribution: EV clusters are concentrated in regions with strong industrial bases, such as Guangdong, Jiangsu, Zhejiang, Shandong, Henan and Sichuan. At municipality level, leading cities include Shenzhen, Shanghai, Xi’an, Hefei, Guangzhou, Chongqing and Changsha. These clusters vary in size, competitiveness, and specialisation.
- Industry Structure: Leading clusters exhibit diverse structures, ranging from integrated ecosystems to specialised segments focused on batteries, components, vehicle assembly and ICVs.

2. Role of Local Industrial Policy
- Cluster Formation: Local governments create favourable environments through subsidies, infrastructure investment, and capital participation.
- Policy Challenges: Fiscal constraints limit the ability of less resourceful governments to support high-risk investments, leading to geographic concentration and domestic competition among regions.
- Involution: Excessive focus on EV clusters results in negative competition and resource waste, creating structural imbalances.

3. Relationship with ICE Clusters
- Path Dependence: Many EV clusters leverage existing ICE infrastructure, including supply chains, skilled labour, and industrial knowledge.
- Divergence: In some cases, new EV clusters emerge independently, driven by local policies and investments rather than ICE heritage.

VI. Discussion and Implications
1. Balancing Industrial Policy
The dual challenge for local governments is to balance the promotion of high-risk EV development with the transformation of the declining ICE industry. A more integrated policy approach is needed to ensure sustainable growth across the automotive sector.

2. Leveraging Industrial Heritage
Path dependence offers opportunities for EV clusters to build on ICE capabilities. However, over-reliance on legacy structures may hinder innovation. Policies should aim to combine the strengths of industrial heritage with forward-looking strategies for electrification and digitalization.

3. The Trend of EV Cluster Evolution

VII. Conclusion
The development of EV clusters in China highlights the critical role of local industrial policy and the enduring influence of industrial heritage. By addressing structural imbalances and fostering innovation, China’s automotive industry can achieve a more sustainable transformation towards electrification and digitalisation. Future research should explore comparative analyses of cluster policies across regions and their long-term impacts on the automotive sector.