From selective to functional industrial policy: China's market-driven transition in the new energy vehicle sector

Abstract

China's transition from selective to functional industrial policies in the new energy vehicle (NEV) sector offers critical insights into how governments can facilitate green technology transitions while maintaining market efficiency. This study examines the mechanisms, effectiveness, and stakeholder responses characterizing this policy evolution through a focused empirical analysis grounded in industrial policy theory and directed technical change literature. Employing a case study methodology, we analyze 127 policy documents (2015-2024) and conduct semi-structured interviews with 23 stakeholders across government agencies, industry organizations, and research institutions in Jilin Province. Thematic analysis reveals a systematic three-phase transition: selective phase (2009-2016) characterized by direct subsidies and technology picking; transition phase (2017-2020) introducing market-based mechanisms; and functional phase (2021-present) emphasizing infrastructure development and competitive R&D funding. Market outcomes demonstrate functional policy effectiveness: NEV sales increased from 1.37 million units (2020) to 9.5 million units (2024), market competition intensified with manufacturers rising from 15 to over 300, patent applications increased 125%, and exports grew 2125%. However, stakeholder interviews reveal implementation challenges including regional coordination difficulties and institutional capacity constraints. The findings contribute to industrial policy theory by demonstrating that functional approaches can address market coordination failures in emerging green technology sectors while avoiding distortions associated with selective interventions, though effectiveness depends critically on institutional capacity and gradual transition management. Unlike previous studies that focus on aggregate outcomes or specific instruments, this research systematically connects policy transition mechanisms to stakeholder responses and market outcomes, advancing understanding of how government intervention can enhance rather than replace market forces in green technology development. The study provides evidence-based guidance for policymakers designing market-oriented industrial policies for sustainability transitions.