Political Economy Seminar - Yong Wang

China's rapid rise in electric vehicle (EV) industry is backed by a structured and sequenced policy bundle, which we document as the 3C framework: Capability, Consumption, and Competition. To unpack the mechanisms and quantify the role of policy, we build an industry-equilibrium model with directed step-by-step innovation and firm dynamics. Over the long run, the 3C bundle delivers domestic welfare gains mainly through consumer surplus and environmental benefits, despite substantial short-run fiscal cost and consumer welfare loss. Quantitative exercises reveal that (i) policy stages exhibit strong static and dynamic complementarities, bundling and sequencing of instruments amplify policy impacts; (ii) effectiveness of policy depends on the country's initial relative position across competing technologies. China's initial lag in gasoline vehicles (GV) implies low cannibalization cost, rationalizing its rapid technology transition; (iii) timely intervention and eventual phase-out are essential. Delayed policies strengthens path-dependency, while prolonged support creates excessive costs.