Why China keeps making more cars than it needs

livemint.com:

BEIJING—In 2019, a little-known Chinese carmaker named Zhido went bust after Beijing cut subsidies for the tiny electric cars it made, crushing its sales. Now it is back. Earlier this month, the company released a boxy new mini-electric vehicle called “Caihong," or “Rainbow" in Chinese, which comes in seven pastel colors—including “Mint Mambo"—and has a starting price equivalent to around $4,400.

Zhido’s rebirth came after state-backed funds and dozens of other investors pumped fresh capital into the company late last year—despite widespread signs that China has too many carmakers to serve its needs. Local government officials cheered its revival. “I hope Zhido can contribute to the sustainable and healthy development of the new energy vehicle industry!" the governor of China’s Gansu province, who visited Zhido’s plant there in March, was quoted as saying on the carmaker’s website.

China has a long history of auto overcapacity, with more than 100 domestic brands churning out more vehicles than the country’s drivers buy each year. Yet the government continues to support companies such as Zhido and others, encouraging unprofitable carmakers to keep producing as officials try to boost economic growth, preserve jobs and expand China’s role in the global electric-vehicle business. Such encouragement, which also comes in the form of subsidies to automakers, is adding cars to a global market that risks becoming more oversupplied.