A two-province race that takes the wind out of 'China Shock 2.0'

Editor's note: Lu Jiajun is a researcher at the Academy of Financial Research and an assistant professor at Zhejiang University International Business School. The article reflects the author's opinions and not necessarily the views of CGTN.

Over the past five months, the title of China's top-producing province for new energy vehicles (NEVs) has changed hands three times. According to figures released by China's National Bureau of Statistics on June 22, Anhui had built 685,300 NEVs by the end of May, narrowly reclaiming the lead from Zhejiang's 670,700. Earlier in the year Zhejiang had nosed ahead. In 2025 it was Anhui that finished first nationally, with 1.79 million units, edging out Jiangsu's 1.57 million and Zhejiang's 1.38 million. Yet this domestic contest is also one of the more revealing rebuttals available to the four arguments now dominating Western commentary on Chinese manufacturing: China is stoking "global imbalances," the world is facing a "China Shock 2.0," Chinese exports are foreclosing industrialization across the Global South, and the entire system rests on extravagant state subsidies. Watched from the inside, the picture is close to the opposite of the one being painted from the outside.

The subsidy story doesn't survive contact with the evidence

Start with subsidies, the claim that underwrites all the others. A convenient image is that Chinese champions have been lifted to the top by public money. But neither Anhui nor Zhejiang is a traditional automaking heartland, and neither has bought its way to the top. They have fought their way there. Zhejiang's resurgence rests on two private companies, Geely and Leapmotor. Leapmotor's entire production base sits in the province; its signature strategy, premium hardware at an aggressively low price, was not a gift from any treasury but a survival response to brutal competition. It is precisely this "high specification, low price" formula that has allowed a young challenger to outrun better-funded rivals such as Nio and Li Auto. Geely, for its part, lifted NEV sales to 1.69 million in 2025, with new-energy models accounting for 56 percent of its volume, on the strength of a strategic pivot rather than a subsidy windfall. If state money alone could conjure this kind of cut-throat provincial rivalry, every country that subsidizes would have one. They do not. What China possesses, and what the subsidy thesis misses entirely, is a uniquely dense, market-driven supplier network in which firms are forced to compete on cost and quality at the same time. The Anhui-Zhejiang seesaw is the visible surface of that competition. You cannot subsidize your way to a close and relentless race between two provinces that were not even automotive powers a decade ago.

Thin margins are the signature of competition, not dumping

The "overcapacity" and "global imbalance" narratives lean heavily on China's export volumes and its roughly $1.2 trillion record trade surplus in 2025, numbers that, taken alone, suggest a machine indifferent to demand and built to flood the world. The most telling figure, though, is not output but profit. Chery reported an NEV gross margin of just 8.8% in its 2025 results, lower than its passenger-vehicle business overall. Executives of leading Yangtze Delta carmakers privately stated that their margins are so thin that any disruption would tip them toward losses. An industry awash in subsidized overcapacity, dumping abroad to offload what it cannot sell at home, would not be operating on margins this slim. Razor-thin margins are the fingerprint of ferocious internal competition, not of predatory pricing. Crucially, the provinces themselves are already turning away from a pure volume contest. Both Anhui and Zhejiang have explicitly abandoned a "scale-only" mindset, shifting the competition toward supply-chain localization rates, profitability, intelligent driving and L3 autonomous-driving approvals. This is a sector that is actively trying to use its capacity more efficiently and climb toward higher value, the opposite of an industry blind to the limits of expansion. The "imbalance" framing, meanwhile, treats exports as a one-way extraction, ignoring that cheaper, better Chinese capital and consumer goods are a gain for the economies that purchase them, a point trade economists have understood since David Ricardo.

"China Shock 2.0" describes climbing, not flooding

The "China Shock 2.0" label, revived at this month's G7 summit in Évian, France, recasts China's surge in electric vehicles, solar panels, batteries and robotics as a threat to the "future industries" advanced economies were counting on for renewal. French President Emmanuel Macron warned that Chinese exports have caused severe damage to European industry; a widely cited Nomura study spanning 45 economies and thousands of product categories has been marshaled to argue a causal link between rising Chinese import share and slowing manufacturing elsewhere. But the original "China Shock" of the 2000s was a story about cheap labor and low-end goods displacing Western factory work. The Anhui-Zhejiang contest is being fought over something entirely different: Autonomous-driving systems, L3 road-test licenses, software integration and component-matching rates. Anhui is pushing Chery and JAC toward L3 approvals as a headline 2026 target; Zhejiang is building what it calls a nationally leading core cluster in intelligent driving. This is not a low-wage flood. China is moving upstream in the value chain into segments that were, until recently, dominated by established companies.The competition that advanced economies now feel is real. But it is competition, the ordinary and uncomfortable consequence of a latecomer getting genuinely good, not a "shock" to be quarantined behind tariff walls. Premium European carmakers competing on brand, software and service have a path forward, as Germany's own producers are demonstrating. Renaming that rivalry a "shock" is a way of avoiding it, not answering it.

The Global South argument deserves the most serious answer

The claim that Chinese manufacturing is squeezing the industrialization space of developing countries deserves the most careful response, because it appeals to solidarity rather than self-interest. Yet here, too, the provincial playbook cuts against the caricature. Look at how these firms are actually going global. Zhejiang's stated strategy is not bare-vehicle dumping but "complete-vehicle-plus-components" exporting in coordinated clusters, paired with building production bases overseas, that is, relocating capacity and diffusing technology, not simply shipping finished cars to undercut local makers. Leapmotor now commands about a third of Italy's battery-electric vehicle market; Zhejiang's NEV exports jumped 91.8% year on year in the first five months of 2026, while Anhui's auto exports led the nation. This is industrial integration, not predation. And the deeper point is one about development itself. Cheaper Chinese clean technology is, for much of the Global South, a public good rather than a threat. The International Energy Agency has documented how Chinese scale has driven down solar-PV costs worldwide. For economies where energy is a binding constraint on growth, cheaper EVs, batteries and panels loosen that constraint and bring the energy transition within fiscal reach. Rather than disengaging, many developing-country blocs are deepening their green and digital cooperation with China. Few are behaving like helpless victims; most are weighing real gains against real frictions and choosing to stay engaged.

From scale to value

None of this is to pretend that Chinese NEV makers face no difficulties. Margins are thin, EU and US tariffs are rising, and an over-reliance on shipping bare vehicles is a genuine vulnerability, which is exactly why the more sophisticated response is overseas plants, robust after-sales networks and brand-building rather than yet more volume. Geely's first-quarter NEV exports rose more than five-fold year on year as its gross margin climbed to 17.5%, and the company now frames overseas business as its second growth curve. That is an industry maturing quickly. That maturation is the real story. What began as a scramble for output has turned into something more consequential: A race to supply the affordable, low-carbon mobility that the rest of the world, and much of the Global South in particular, still cannot build cheaply enough on its own. This is why "China Shock 2.0" is the wrong shot. A shock is something done to others; what Anhui and Zhejiang are doing is lowering the price of the energy transition and widening the road others can travel down. The title of China's "first NEV province" will keep changing hands. The deeper shift it points to, that is, an industry moving from cheap manufacturing to making the future affordable, will not. That is a story that the world would best interpret as an opportunity rather than a threat.