1/8
Caixin: "Chinese policymakers are stepping up efforts to stamp out rampant “involution-style” competition across a range of key industries. Since a Politburo meeting in July last year, addressing the problem has become a top priority because of...
caixinglobal.com/2025-07-24/in-…
Caixin: "Chinese policymakers are stepping up efforts to stamp out rampant “involution-style” competition across a range of key industries. Since a Politburo meeting in July last year, addressing the problem has become a top priority because of...
caixinglobal.com/2025-07-24/in-…
2/8
the damage it’s causing to the economy by distorting market pricing, eroding corporate profit margins, and undermining industrial efficiency."
And yet the article also notes that "in the second quarter, the national industrial capacity utilization rate fell to 74%."
the damage it’s causing to the economy by distorting market pricing, eroding corporate profit margins, and undermining industrial efficiency."
And yet the article also notes that "in the second quarter, the national industrial capacity utilization rate fell to 74%."
3/8
What Beijing calls "rampant involution-style competition", in other words, seems to me like a natural response to rising excess capacity among businesses that don't have hard budget constraints: if you can't reduce production, do anything else you can to clear inventory.
What Beijing calls "rampant involution-style competition", in other words, seems to me like a natural response to rising excess capacity among businesses that don't have hard budget constraints: if you can't reduce production, do anything else you can to clear inventory.
4/8
In that case, I'm not sure how helpful it is to call for less "involution-style" pricing competition while still growing capacity faster than domestic demand. If the growing imbalance does not show up in declining prices, it must show up in some other, equally-disruptive way.
In that case, I'm not sure how helpful it is to call for less "involution-style" pricing competition while still growing capacity faster than domestic demand. If the growing imbalance does not show up in declining prices, it must show up in some other, equally-disruptive way.
5/8
Caixin adds that "although the government has previously acted to stop price wars caused by overcapacity and insufficient demand, those efforts mainly targeted companies in specific industries."
Caixin adds that "although the government has previously acted to stop price wars caused by overcapacity and insufficient demand, those efforts mainly targeted companies in specific industries."
6/8
"But this time," it continues, "the authorities are also gunning for the local governments whose support and subsidies have helped create a distorted landscape that’s propping up inefficient and unprofitable companies that would otherwise be forced to exit the market."
"But this time," it continues, "the authorities are also gunning for the local governments whose support and subsidies have helped create a distorted landscape that’s propping up inefficient and unprofitable companies that would otherwise be forced to exit the market."
7/8
That, to me, is the crux of the problem. Local governments are not "propping up inefficient and unprofitable companies" because they like to lose money, especially now, when financing has become so difficult and they are cutting back on spending.
That, to me, is the crux of the problem. Local governments are not "propping up inefficient and unprofitable companies" because they like to lose money, especially now, when financing has become so difficult and they are cutting back on spending.
8/8
They're doing it because they have to meet unrealistically high GDP growth targets, which means they must fund more investment and more production whether or not either makes economic sense.
Until China sharply lowers its GDP growth target, I don't see how this gets resolved.
They're doing it because they have to meet unrealistically high GDP growth targets, which means they must fund more investment and more production whether or not either makes economic sense.
Until China sharply lowers its GDP growth target, I don't see how this gets resolved.
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