China’s EV Dominance Came From City Hall, Not Beijing, And Washington Is Repeating Its Drone Mistake

New research published in The China Journal dismantles the story Washington tells itself about China’s electric vehicle rise. Political scientists Fengming Lu and Xiao Ma argue the boom was never engineered by a Beijing master plan. It grew from alliances between ambitious second-tier city governments and private carmakers that central regulators had locked out of the industry.

I’ve spent almost a decade covering the drone industry at DroneXL, and last December I watched the United States ban DJI and Autel Robotics by default after federal agencies never completed the security audit Congress ordered. The same playbook is now running against Chinese EVs, and this new research suggests America is building a wall against the wrong enemy.

The distinction matters because US policy assumes China’s EV lead is the product of centralized subsidies that tariffs and bans can neutralize. If the lead actually comes from dozens of city governments competing like venture capitalists, the wall buys time without closing the gap.

Hefei Bet $1 Billion On A Dying NIO And Won

The Hefei model describes the February 2020 deal in which the city government of Hefei, in China’s Anhui province, rescued a near-bankrupt NIO with an investment of roughly $1 billion in exchange for equity and a headquarters relocation, a bet that more than doubled in value within months.

NIO announced the framework agreement on February 25, 2020. The company was already wounded: a costly battery recall had pushed its New York-listed shares toward one dollar in late 2019, and then Covid froze what fundraising options remained. Hefei demanded real concessions: NIO moved its China headquarters and core operations to the city, anchoring an industrial park the company calls the largest of its kind in the world. The city government later sold down much of its stake at a multiple of its entry price and recycled the proceeds into the next wave of EV suppliers. In the decade to 2020, Hefei was China’s fastest-growing city by gross domestic product.

Juliet Samuel brought the Hefei story to a wider audience this week in her column for The Times of London, contrasting it with the UK’s own stalled regional growth plans. Her conclusion travels well across the Atlantic.

Local Governments And Private Carmakers Outran Beijing’s Rules

Lu and Ma’s paper, The Rise of China’s Electric Vehicle Industry: Strategic Alliances Between Local Governments and Private Capital, finds that strict central regulations and entrenched state-owned carmakers shut most Chinese cities out of the auto business, so local officials allied with private startups and worked around the licensing system instead.

The pattern predates the EV era. In 2010, Geely combined private investment from Goldman Sachs with cheap financing from local governments to buy Volvo Cars, a company with ten times its profits and decades more engineering experience. After 2015, a frenzy of EV entrants flipped the power balance. Cities could suddenly demand greater equity stakes and local investment commitments from startups desperate for capital.

Local officials also held a riskier card: helping startups obtain production licenses through acquisitions or regulatory loopholes. NIO itself borrowed production qualifications from JAC, a struggling provincial state-owned automaker. When these ventures succeeded, Beijing blessed them after the fact. When they failed, officials faced party discipline. Nanjing alone watched five car-making projects collapse in nine years. That tolerance for expensive failure, paired with windfall rewards for success, is what a functioning venture market looks like, even when the venture capitalist is a city government.

Washington Answers Innovation With Walls

The United States keeps Chinese EVs out through a 100% Section 301 tariff, a Commerce Department rule banning Chinese connected-vehicle software from model year 2027, and the proposed Connected Vehicle Security Act of 2026, which would prohibit Chinese vehicles from American roads entirely.

Stacked duties push the effective rate on a Chinese-made EV past 110%. Senators Bernie Moreno and Elissa Slotkin introduced their bipartisan ban in May, with restrictions on vehicles and software taking effect in 2027 and hardware following in 2030. None of this reflects what buyers want. As EVXL reported in March, 40% of US consumers say they would consider a Chinese EV they currently cannot purchase or even test-drive.

The carmakers aren’t waiting politely. BYD sued the US government in January over tariffs on its bus and battery operations, the first such lawsuit by a Chinese automaker. The export flows tell the rest of the story: Chinese EV shipments to Mexico exploded 2,367% year-over-year in November while direct exports to the US collapsed. Canada chose a different path in January, striking a deal with Beijing that admits up to 49,000 Chinese EVs annually at a 6.1% tariff.

The Drone Industry Already Ran This Experiment

The US drone market shows where this path leads. In December 2025, after no federal agency completed the security audit required by Section 1709 of the FY2025 National Defense Authorization Act, the FCC added every foreign-made drone, including all DJI and Autel Robotics products, to its Covered List.

I reported that ban within hours of the announcement at our sister publication DroneXL. No evidence was gathered. No findings were made. DJI spent 2025 formally asking agencies to start the mandated review, and none did, so the company was banned by missed deadline rather than by judgment. DJI is now fighting the decision in the Ninth Circuit, telling the court that 25 planned 2026 products are blocked and putting its lost US revenue at $1.56 billion this year alone.

Meanwhile, American pilots fly aging fleets with no replacement pipeline. The ban produced a parts shortage instead of an American DJI. Five years of escalating restrictions never conjured a domestic competitor that could match Chinese drones on price and capability, because restrictions don’t build factories. The same gap is opening in cars: the wall is going up before a single Chinese passenger car reaches an American driveway, which means Detroit never faces the competitor and American buyers never see the price.

EVXL’s Take

I’ve covered the DJI ban from the FCC’s first retroactive-authority vote in October 2025 through the Ninth Circuit briefs this spring, and the lesson isn’t subtle. Washington spent years treating a symptom (Chinese hardware on American soil) while ignoring the disease (no American company building a competitive product at a competitive price). The EV wall repeats that logic with higher stakes, because cars are a far bigger industry than drones and the jobs argument cuts both ways.

Lu and Ma’s research makes the policy failure sharper. If China’s edge came from one central plan, you could counter it with one central wall. It didn’t. It came from Hefei outbidding Beijing’s development zone for NIO, from Geely buying Volvo with city money, from dozens of local experiments where failure was allowed and success got rewarded. You don’t out-compete that system by banning its products. You out-compete it by copying its tolerance for risk. Samuel’s Times column puts it bluntly: “Everything else is just someone’s pet theory.”

My prediction is a direct echo of the drone saga. Congress sends a Chinese-vehicle ban to the president’s desk by the end of 2027, and when it happens, no national security agency will have completed a formal audit of a single Chinese carmaker.

Sources: Juliet Samuel, The Times, The China Journal.

EVXL uses automated tools to support research and source retrieval. All reporting and editorial perspectives are by Haye Kesteloo.