State Capitalism Reversed: Why China’s "State-Owned" EV Makers Are More Agile Than Japan’s Corporate Giants
In much of the Western imagination, "state-owned enterprise" evokes images of Soviet-era inefficiency — bloated bureaucracy, lack of innovation, and rigid central planning. So it may come as a surprise that some of the most dynamic players in the global electric vehicle (EV) market today are Chinese state-owned automakers like Changan Automobile.
Even more surprising is the contrast with Japan. Despite being a democratic, capitalist country with a legacy of manufacturing excellence, Japan’s auto industry seems increasingly trapped in a web of protectionism and bureaucratic inertia. In some respects, Japan’s current system looks more like the Soviet model — not in formal structure, but in function: prioritizing stability over innovation, shielding incumbents, and resisting disruptive change.
This paradox — a one-party state fostering more market-driven behavior than a liberal democracy — deserves a closer look.
China's Hybrid Model: State Ownership, Market Discipline
Changan Automobile, based in Chongqing and partially owned by China’s central government via the SASAC (State-owned Assets Supervision and Administration Commission), is often categorized as a state-owned enterprise (SOE). But unlike the monopolistic SOEs of the planned economy era, modern Chinese SOEs have undergone structural reforms since the 1990s.
Many are publicly listed on stock exchanges (Changan is listed in Shenzhen), and though the government retains controlling stakes — often around 47–50% — these companies must compete in the open market. Their performance is judged not only by political loyalty but increasingly by profitability, innovation, and global competitiveness.
Key executives are evaluated based on business KPIs, and underperforming managers can be removed. Government directives set strategic priorities — for example, pushing for EV adoption — but operational autonomy is largely respected. China’s SOEs now often operate like large public-private hybrids, accountable both to state planners and to financial markets.
Market Pressure, Not Monopoly Protection
Why have China’s state-owned automakers embraced EVs so enthusiastically?
Because they must.
China’s auto market is the most competitive in the world today. Domestic brands face not only each other but also private startups like BYD, XPeng, and NIO, plus foreign giants like Tesla and Volkswagen. Even state-owned companies are not shielded from failure. Several weaker ones have already been restructured or closed over the past two decades.
This competitive pressure, combined with clear industrial policy and massive public investment in EV infrastructure, has allowed Chinese automakers — both state-owned and private — to leapfrog ahead in electrification, often outpacing their Western and Japanese counterparts.
Japan: Bureaucratic Capitalism Masquerading as Free Market
Now consider Japan.
At a glance, Japan appears to follow a free-market model. Toyota, Nissan, Honda — all privately owned, publicly traded corporations. But under the surface lies a deeply entrenched ecosystem of government–industry collusion, especially between major automakers and ministries like METI (the Ministry of Economy, Trade and Industry) and MLIT (Ministry of Land, Infrastructure, Transport and Tourism).
These relationships were crucial in Japan’s postwar industrial rise. But today, they function as mutual protection schemes that suppress innovation in favor of legacy systems.
Take hybrid vehicles (HEVs). Japan lobbied hard for HEVs to be considered "zero-emission" vehicles under domestic and even international frameworks, delaying full EV adoption. Regulations often favor existing players through technical standards, certification hurdles, and implicit market guarantees.
There is little appetite — politically or socially — to let any major automaker fail, despite the fact that disruptive transformation is exactly what the industry needs.
The Tragedy of Being "Too Important to Fail"
In Japan, automotive giants are seen as national treasures — sources of employment, exports, and pride. This emotional attachment makes real structural reform politically toxic.
As a result:
Government subsidies tend to support existing players, not startups.
Regulations are designed to preserve the status quo, not foster creative destruction.
Market discipline is dulled by an unspoken consensus: "Let’s not rock the boat."
Ironically, this puts Japan closer to the Soviet model in spirit — where the survival of existing institutions is prioritized over long-term dynamism.
A Cruel Twist: Who Is Really Practicing State Capitalism?
In theory, China is authoritarian and Japan is democratic. But in practice, when it comes to the governance of large industrial players, the roles appear reversed.
FeatureChina (State-Owned)Japan (Privately-Owned)Market CompetitionHighLow (domestic)Government StrategyClear & forward-lookingDefensive & reactiveNew Entrant SupportStrong (BYD, NIO, etc.)WeakRisk-TakingEncouragedAvoidedInstitutional FlexibilityModerateLowOpenness to DisruptionHighLow
In short, China allows its "state-owned" firms to act like private competitors, while Japan allows its "private" firms to behave like protected state entities.
Conclusion: Creative Destruction or Institutional Decay?
No system is perfect. China’s model has its own risks — including overcapacity, local protectionism, and geopolitical overreach. But one cannot deny its strategic coherence and ability to mobilize resources toward transformation.
Japan, by contrast, seems increasingly paralyzed — not for lack of talent or technology, but because the system refuses to allow disruption. What made Japan strong in the 20th century — stability, consensus, close government–industry ties — may now be its biggest liability.
If Japan wants to reclaim leadership in mobility, it must find the courage to let go of the old giants when necessary — and create space for the new.