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June Xia

Stimulating consumer demand and encouraging sustainable innovation are vital to China’s efforts to combat excessive competition – termed neijuan in Chinese, or “involution” - and could even help turn the trend into a virtuous cycle, analysts said.
Top-down macroeconomic policies are also crucial, as actions taken by enterprises alone are insufficient, they added.
“The essence of ‘involutional’ competition is inefficient competition in a limited market space,” analysts from China International Capital Corporation (CICC) said in a research note.
“Therefore, boosting demand to create an ‘incremental cake’ by expanding the scale of market demand can provide a favourable macro environment to combat involution.”
The term neijuan, or “involution”, refers to a self-defeating cycle of excessive competition in which companies are forced to invest increasing resources without benefiting from proportional returns.
To tackle the roots of the problem, companies must increase research and development and offer differentiated products – fostering a positive, demand-driven cycle, the CICC analysts said in the July 17 note.
China’s top leaders have raised the alarm in recent weeks. In a meeting chaired by President Xi Jinping on July 1, the Central Finance and Economic Affairs Commission said Beijing needed to “guide enterprises to improve product quality and promote the orderly exit of outdated production capacity”.
This signalled a willingness by the central government to steer industries towards innovation-led growth and incremental profits, analysts said.
Only when the capital market is revitalised can the entire economic environment be fundamentally freed from involution
Zhao Yanjing, an economics professor at Xiamen University
“Anti-involution seeks to induce healthy competition among firms to promote sustainable innovation,” the CICC note’s authors said. Both insufficient and excessive competition can stifle innovation, while only appropriate levels of competition can maximise performance, they added.
Terence Chong, Associate Professor of Economics at the Chinese University of Hong Kong, said a healthier competitive landscape emerges when firms compete based on unique products.
“Companies can use new technologies to lower costs and even price their products higher than competitors to achieve differentiated competition,” he said.
Analysts also urged policymakers to introduce stronger demand-side stimulus.
Zhao Yanjing, an economics professor at Xiamen University, said excessive competition stemmed from rapid labour market growth outpacing expansion in capital markets – and that macroeconomic intervention was necessary.
“Can ‘involution’ be solved simply by enterprises? No!” Zhao wrote in his article Involution Governance is a Macro Issue, published in July.
“It’s like a person being trapped in a descending lift. No matter how high he jumps, he can’t change the downward trend of the lift. The problem can only truly be solved when the lift itself stops falling.”
“Only when the climate warms up can plants sprout and flourish. Similarly, only when the capital market is revitalised can the entire economic environment be fundamentally freed from involution.”




Australian investment bank Macquarie Group said in a note earlier this month that Beijing must launch major demand-side stimulus to offset the shock of capacity cuts and reduce price competition.
Earlier last week, Premier Li Qiang chaired an executive meeting of the State Council to review the implementation of key policies aimed at strengthening domestic circulation. The meeting called for special initiatives to boost consumption and a “systematic clean-up” of unreasonable restrictions that limit household spending.
Competition has intensified in the e-commerce delivery sector since the beginning of July, when Meituan, Alibaba and JD.com rolled out new subsidies to attract consumers. Alibaba owns the South China Morning Post.
On Friday, the State Administration for Market Regulation held a meeting with the three companies, urging them to approach competition rationally and create an ecosystem that benefits consumers, merchants, riders and platforms.
There is also ongoing debate over whether the behaviour of the firms amounts to neijuan.
On July 16, the state-owned Economic Daily wrote that “platform-based food delivery, alongside hard-tech achievements like high-speed rail breakthroughs… represents two facets of Chinese innovation – overcoming ‘chokehold’ technologies and making people’s lives and employment more convenient – and we need both”.
Xu Ke, Director of the Digital Economy and Legal Innovation Research Center at the University of International Business and Economics, called the expansion of e-commerce platforms into instant retail an “evolution” marked by three trends – expanding scale, improved services and technological innovation.
“It could become the best testing ground for the low-altitude economy, as instant retail can drive the self-sustaining iteration of this industry, powered by drone deliveries, and promote a series of technological innovations in aircraft, AI algorithms and more.”


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To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions


To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions.


China urged to curb ‘neijuan’ by boosting domestic consumption, innovation-led growth

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions

To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions