Chinese authorities are intensifying their campaign to stamp out competition across multiple industries. In doing so, they are tackling the immediate and growing economic concerns that the country is experiencing. The word “involution,” or “neijuan,” has become an internet buzzword. Specifically, it characterizes the cutthroat competition and overabundance of capacity that’s plaguing industries such as solar panels, steel and electric vehicles. This decision follows an uninterrupted decline in China’s producer price index (PPI). It has been declining for almost three years in a row because of continued deflationary pressure.
That government revolution Chinese central authorities—most recently Chinese leader Xi Jinping—have repeatedly called for stronger regulation of competition. He echoed needs for increased local government incentives to lure factory investments. This approach aims to mitigate the detrimental effects of involution and support high-quality economic development, aligning with the Communist Party’s broader goals.
Just on June 29, the People’s Daily ran a critical article. This government-controlled party organ powerfully illustrated how involution is antithetical to developmental goals. The article illustrates the government’s real commitment to curtailing cut-throat competition. This crisis has hit nearly every sector, but none more than the automotive manufacturers stuck in intense vehicle price wars.
In recent months, the Chinese government and the Chinese industry associations have indicated their determination to address involution. When this partnership was first launched, the focus was squarely on automakers. This was particularly true for EV manufacturers, where severe price competition has become a trend. We can’t wait on this issue. On June 30, the ten largest producers of glass used in solar panels united to announce a major move: agreeing to close kilns and cut production by 30%.
Involution was initially popularized by students and young workers. They didn’t want to feel stuck in a vortex of cyclical, pointless game forcing. But since then it has spread to include any industry facing severe overcapacity, especially steel and cement. This intense over-competition has triggered concerns about economic viability and the long-term impact on China’s manufacturing industry.
In recent months, Chinese exports have begun a skyrocket trajectory. This sharp rise has incited Europe, the United States, and other emerging markets to raise trade protectionisms. This situation underscores the urgent need for policymakers to strike a balance between fostering economic growth and managing competitive pressures.
Recent pronouncements by top Chinese economic officials suggest a new willingness to recognize the necessity for reform. Alicia García-Herrero remarked on the situation, saying, “How much is action versus words, I don’t know.” Such sentiments not only speak to a new understanding by more people of the nuance over the evolution of involution and its effects on China’s economic landscape.
