Two essays on electric vehicle subsidies and auto industries in China

China’s automobile market is the world’s largest automobile market. In recent decades, the development of China’s automobile market has been closely tied to the policies of the Chinese government. This dissertation explores the impact of two key government policies - China’s auto subsidy policy and China’s joint venture policy - on the Chinese automobile market over the past several years. Chapter 1 investigates the pass-through and distributional effects of electric vehicle (EV) subsidies in China. It evaluates how these effects affect market equilibrium and welfare. Empirical results indicate that EV subsidy pass-through to consumers is more than complete, disproportionately favoring high-income individuals. Additionally, Chapter 1 introduces an equitable subsidy model that prioritizes innovation while being progressive in the sense that it redistributes resources toward low-income households. A surprising finding is that this alternative scheme reduces consumer surplus, as producers exploit its progressive structure, transferring gains. Despite enhancing EV adoption and welfare (excluding externalities), the progressive design of subsidies transfers consumer surplus to producers. Chapter 2 explores the impacts of knowledge spillovers instigated by China’s automotive industry policy on cost efficiency. The policy accelerates the sector-wide adoption of advanced technologies and facilitates knowledge transfer both horizontally through labor mobility and vertically via shared suppliers. By analyzing automotive sales data and patent data from 2016 to 2020, Chapter 2 analyzes knowledge spillovers among firms and assesses cost reduction variations through various channels. The finding indicates a significant benefit for companies within the same automotive groups, particularly via horizontal spillovers. Additionally, Chapter 2 employs counterfactual analysis to contrast supplier profits and consumer welfare against the status quo. The results suggest a marked difference in profit losses for indigenous brands, especially fuel vehicles, without spillovers, versus joint ventures.