It is true that China wants to build their "own" industry, not more subsidiaries of multinationals. However, if they use this overcapacity to wean out Western companies, their collateral damage would be too high. They will have an economic bust at least for a while, which they may not be able to escape. Remember Tienanmen Uprising? That erupted because China is in a recession at the time. Imagine what will happen if Chinese economy really tanks, as S. Korea or Japan did. Things can get really ugly fast.
Correction:
It is true that China wants to build their "own" industry, not more mere subsidiaries of multinationals. However, if they use this overcapacity to wean out Western companies, their collateral damage would be huge. They will have an economic bust at least for a while, which they may not be able to escape survive. Remember Tienanmen Uprising? That erupted because China is was in a recession at the time. Imagine what will happen if Chinese economy really tanks, as S. Korea or Japan did. Things can get really ugly fast.
And then the guys in charge in Peking say "So what? A few million dead people here or there don't signify".
Also, China has historically been in it for the long haul. As others have pointed out, if they can get the expertise and the facilities for free(heck, even making money along the way) and suffer a slowdown for a couple years as the economies of the world dive, they would be happy. Because they have a HUGE built in market and then they would swoop in to capture a big % of the world market during the next upswing.