TL;DR
- Xi Jinping warns local officials against excessive investments in artificial intelligence (AI) and electric vehicles (EVs).
- Concerns arise over potential overcapacity and market saturation as provinces aggressively pursue similar industrial goals.
- Xi emphasizes the need for coordinated, quality-driven development in emerging sectors.
- The comments reflect a strategic pivot in China’s economic policy, focusing on sustainable growth.
Xi Jinping Warns Against Over-Investment in AI and EVs
In a significant departure from his typical public rhetoric, Chinese President Xi Jinping has issued a stern warning to local officials regarding the rampant investments in artificial intelligence (AI) and electric vehicles (EVs). This critique, delivered during a session of the Communist Party’s Central Financial and Economic Affairs Commission, highlights Xi's growing concerns over overcapacity and market saturation within these rapidly expanding sectors.
Xi's remarks come at a critical time when provincial governments are aggressively pushing development in AI and EVs, often leading to a duplication of efforts and inefficiencies that threaten the very industrial strategy Beijing aims to cultivate. “Blindly following suit and rushing into projects will inevitably lead to overcapacity,” he cautioned, urging a more calculated approach to technological advancement.
Concerns Over Local Competition and Industry Redundancies
The president's critique sheds light on a troubling trend of local governments competing against each other by developing identically focused industrial sectors. This aggressive competition has inadvertently led to redundant infrastructure and unsustainable market practices, which are jeopardizing profitability and contributing to deflationary pressures within these industries. Reports indicate that even as the number of NEV manufacturers decreases, the production capacity continues to outstrip demand, with many firms operating below optimal utilization rates1.
Formerly, these local pushes were encouraged to stimulate economic growth; however, they now pose substantial risks to both regional and national economic stability. This situation has prompted calls for a rethink in local governance and a shift toward a more unified national industrial policy.
Macro-Economic Challenges Amplify Xi's Warnings
Xi's warning occurs against a backdrop of broader macroeconomic challenges. Despite a reported resilience in China's real GDP in the second quarter, the nominal growth rate has plummeted to just 3.9%, representing the weakest growth since the onset of the pandemic2. This decline signals deepening deflationary pressures, exacerbated by an imbalance between production and consumption.
In sectors like AI and EVs, where output has surged, the gap between supply and demand is undermining corporate margins and triggering intense price wars. As Xi Jinping re-emphasizes the importance of "high-quality development," his administration is reportedly intent on curbing overinvestment and steering local economies toward sustainable growth instead of reckless expansion.
A Call for Strategic Economic Coordination
The shift in rhetoric from Xi Jinping aligns with recent commitments from Premier Li Qiang, who has also signaled an intent to reduce irrational competition in the EV sector. This synchronized messaging from top government officials indicates a strategic pivot away from investment-led growth toward a more comprehensive, coordinated approach focused on quality over quantity.
Xi’s recent comments echo earlier guidance suggesting that regions develop sectors based on their unique strengths rather than conforming to a one-size-fits-all approach. The renewed emphasis on demand-side reform and the need for a more coherent industrial strategy signal a fundamental rethinking of how China approaches its economic aspirations in high-tech industries going forward.
Conclusion
As China grapples with the challenges of overcapacity and deflation amid its rapid technological ascent, Xi Jinping’s warning serves as a crucial reminder of the balancing act required in pursuing growth. His call for sustainable, coordinated development over unchecked provincial competition could reshape China’s approach to emerging technologies, ultimately contributing to a more resilient and strategically coherent economy.
With the implications of these remarks reverberating nationally, it remains to be seen how local governments will adjust their strategies in light of Xi’s call for a more sustainable path forward.
References
[^1]: Financial Times (July 18, 2025). "Xi warns Chinese officials against over-investment in AI and EVs". Financial Times. Retrieved July 18, 2025.
[^2]: Tech In Asia (July 18, 2025). "Xi criticizes local authorities’ focus on AI, EV industries". Tech In Asia. Retrieved July 18, 2025.
[^3]: FastBull (July 18, 2025). "Xi Jinping Warns Against Overinvestment in AI and EVs as China Faces Overcapacity and Deflation". FastBull. Retrieved July 18, 2025.
Metadata
- Keywords: Xi Jinping, China, Artificial Intelligence, Electric Vehicles, Economic Policy, Overcapacity, Local Governments, Sustainable Growth
