How Tackle ‘Race to the Bottom’ Competition (AI Translation)
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文｜财新周刊 于海荣
By Yu Hairong, Caixin Weekly
从2024年7月底中央政治局会议首次提出“防止‘内卷式’恶性竞争”开始，过去一年间，综合整治“内卷式”竞争，一直是经济工作的重要任务之一。
Since the Central Politburo meeting at the end of July 2024 first raised the issue of “preventing involutionary vicious competition,” comprehensive efforts to curb such “involutionary” competition have remained a key focal point in economic policymaking over the past year.
今年7月1日召开的中央财经委员会第六次会议，研究纵深推进全国统一大市场建设等问题，强调依法依规治理企业低价无序竞争，引导企业提升产品品质，推动落后产能有序退出。6月29日和7月1日，《人民日报》和《求是》杂志分别刊发署名金社平和巨力的文章，主题均聚焦“内卷式”竞争，并点名了光伏、新能源汽车、储能系统、电商平台等行业。
At the sixth meeting of the Central Financial and Economic Affairs Commission held on July 1 this year, officials discussed the advancement of the nationwide unified market, placing emphasis on the necessity to regulate disorderly and cutthroat price competition among enterprises in accordance with the law. The meeting urged businesses to enhance product quality and called for the orderly withdrawal of outdated production capacity. On June 29 and July 1, People's Daily and Qiushi magazine, respectively, published articles under the pen names Jin Sheping and Juli, both of which centered on the theme of "involution" competition, explicitly singling out sectors such as photovoltaics, new energy vehicles, energy storage systems, and e-commerce platforms.
一些行业也开始了自发“反内卷”的行动：6月，17家主流车企宣布，将供应商支付账期统一压缩至60天内；中国光伏行业协会引导企业签署自愿控产自律公约；国内头部光伏玻璃企业计划自7月起集体减产30%；中国水泥协会发布《关于进一步推动水泥行业“反内卷”“稳增长”高质量发展工作的意见》；33家建筑类企业联合发出建筑行业“反内卷”倡议书等。
Some industries have also begun spontaneous efforts to counteract “involution”—an intensification of competition to the point of inefficiency. In June, 17 leading automotive companies announced a unified policy to shorten supplier payment terms to within 60 days. The China Photovoltaic Industry Association guided companies to sign a voluntary production control and self-discipline pact. Major domestic photovoltaic glass manufacturers plan to collectively reduce output by 30% starting in July. The China Cement Association issued an “Opinion on Further Promoting ‘Anti-Involution’ and High-Quality, Steady Growth in the Cement Industry.” Thirty-three construction firms jointly released an open letter advocating against “involution” within the construction sector.
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- Since mid-2024, China has prioritized addressing "involution-style" unhealthy competition, especially in industries like photovoltaics, NEVs, and e-commerce, with policies targeting both firms and local governments.
- Industrial overcapacity is severe: Q1 2025 utilization was 74.1%; prices (PPI) have been negative for 33 months; sectors most affected include raw materials, manufacturing, and consumer goods.
- Measures focus on industry self-regulation, legal reforms for fairer competition, rationalization of local incentives, and balancing supply-demand through tailored, sector-specific approaches.
Summary:
Beginning in late July 2024, when the Central Politburo first addressed the issue of “preventing involution-type malignant competition,” the comprehensive remediation of involution-style competition has remained a crucial aspect of economic policy for the past year. The sixth meeting of the Central Financial and Economic Affairs Commission on July 1, 2025, reiterated the need to regulate disorderly, low-price competition among enterprises by legal means, stimulate higher product quality, and guide the orderly exit of backward production capacity. Official commentaries highlighted the urgency of addressing involution in sectors such as photovoltaics, new energy vehicles (NEVs), energy storage, and e-commerce. Industry initiatives followed, including agreements among 17 leading car companies to shorten supplier payment cycles, voluntary production controls in photovoltaics, collective capacity cuts in the glass and cement industries, and appeals for fairer competition[para. 1][para. 2][para. 3].
The central government’s call for the orderly withdrawal of backward capacity has led to speculation about renewed supply-side reform, which has driven rallies in resource stocks and corresponding commodity futures. Nonetheless, the campaign against involution extends beyond capacity reductions, embracing a wider spectrum of policy tools and regulatory reforms targeting both enterprises and local governments. “Involution” is identified not only in firms’ price wars and homogenous competition but also in local governments’ unfair incentives to attract business, resulting in policy distortions and redundant industry setups[para. 4][para. 5].
A fundamental difference between fair and involuted competition lies in how market price signals are respected and used. Involution disregards the balance between cost, price, and supply-demand, distorting market function and leading to industry decline and harm to consumer rights—effects that, if unchecked, result in sector-wide and even multi-sector “lose-lose” outcomes. Remediation thus focuses on restoring and protecting effective price signals[para. 6].
Sectors targeted include not only traditional industries like steel and coal, but also photovoltaics, lithium batteries, NEVs, and e-commerce platforms, often with industry self-regulation instead of outright administrative intervention. Campaigns are coupled with legal and regulatory changes: new norms set limits for local government favoritism and large-enterprise abuse of market power, and require prompt supplier payments[para. 7][para. 8][para. 9].
Addressing involution requires correcting supply-demand imbalances. While efforts are ongoing to expand domestic demand through stimulus and social policy, for some industries with chronic oversupply, demand-side efforts must be complemented by capacity limits. The last round of supply-side reform (from 2015) combined production curbs with urbanization and infrastructure spending, setting a precedent for today’s more differentiated, sector-specific interventions through a mixture of administrative, market-based, and self-regulation mechanisms[para. 10][para. 11][para. 12].
The root of involution includes factors at every level: structural incentives for both local governments and enterprises, the pursuit of short-term growth over sustainability, and lagging regulation in the face of new technologies and business forms. Major causes have been identified as intensified local-government competition in attracting industry, excessive policy incentives, industry duplication, and neglect of smaller businesses[para. 13][para. 14][para. 15][para. 16][para. 17]. Updated competition laws and payment regulations now aim to close the loopholes that enabled these maladaptive practices.
Ultimately, a successful “anti-involution” offensive must combine demand-side stimulus, stricter market exit mechanisms, regulatory modernization, local government accountability, and balanced industrial and competition policy to ensure fairer allocation of resources, sustainable industry progress, and the high-quality development of China’s economy[para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24].
- China Photovoltaic Industry Association
中国光伏行业协会 - The China Photovoltaic Industry Association (CPIA) is mentioned in the article as actively combating "involution" within the industry. It has guided enterprises to sign a voluntary self-regulation pact to control production, aiming to address overcapacity and disorderly competition in the Chinese solar sector.
- China Cement Association
中国水泥协会 - The China Cement Association issued "Opinions on Further Promoting 'Anti-Involution' and 'Steady Growth' in the Cement Industry." This promotes unity between recorded and actual clinker production capacity, aiming to curb excessive competition and stabilize industry growth.
- National Information Center
国家信息中心 - Wei Qijia, **Director of the Industrial Economic Research Office at the National Information Center's Economic Forecasting Department**, highlights that unhealthy competition distorts price signals, hindering effective resource allocation and causing internal attrition within industries.
- CITIC Securities
中信证券 - CITIC Securities, through comprehensive analysis, identified three main categories of industries under pressure from "involution-style" competition: upstream raw materials (coal, steel, cement), equipment manufacturing (automobiles, electrical machinery), and certain consumer goods sectors (medicine, food manufacturing).
- Goldman Sachs
高盛 - Goldman Sachs, in a July 1st research report, evaluated the supply-demand balance of seven Chinese manufacturing sectors, noting that five still have higher production capacity than global demand. While the downward trend in prices has slowed compared to a year ago, it has not reversed.
- Industrial Bank
兴业银行 - Industrial Bank's Chief Economist, Lu Zhengwei, analyzed the "anti-involution" progress in various industries. He noted that the black metal processing industry is advancing relatively quickly, while the photovoltaic industry needs further deepening of its anti-involution efforts. The automotive industry, however, is progressing relatively slowly.
- Shenwan Hongyuan Securities
申万宏源证券 - Shenwan Hongyuan Securities' chief economist, Zhao Wei, suggests that the current "anti-involution" efforts, unlike the 2015 supply-side reforms, focus on industry upgrades, green initiatives, and intelligence. He anticipates a greater emphasis on industry self-discipline and market mechanisms, rather than simply reducing capacity.
- Yuekai Securities
粤开证券 - Luo Zhiheng, Chief Economist at Yuekai Securities, suggests that guiding supply-side adjustments should consider the technical development of various industries. He proposes different approaches for traditional and emerging industries, emphasizing increased support for innovation and market-based mechanisms for the latter.
- China Iron and Steel Industry Association
中国钢铁工业协会 - The China Iron and Steel Industry Association has taken a self-regulatory approach to address "involution" within the steel sector. In April, they indicated they would issue warnings to six steel companies that experienced negative cash flow in Q1 2024 and/or increased crude steel output.
- Development Research Center of the State Council
国务院发展研究中心 - The Development Research Center of the State Council is a policy research and advisory body under the State Council of China. Li Zuojun, a researcher and director at its Public Administration and Human Resources Institute, co-authored a report in 2023.
- Temasek Holdings
淡马锡 - Temasek Holdings, led in China by Wu Yibing, recognizes that full market competition boosts China's economic vitality and efficiency. However, they caution against sacrificing long-term gains for short-term benefits, a risk associated with intense competition.
- 2023：
- Report led by Li Zuojun warns about rising 'involution' in local government investment attraction.
- End of July 2024：
- Central Politburo meeting first raises the issue of 'preventing involutionary vicious competition'.
- August 1, 2024：
- The 'Fair Competition Review Regulation' comes into effect, explicitly prohibiting local governments from granting certain preferential policies to specific market entities.
- December 2024：
- Central Economic Work Conference discusses comprehensive measures to address excessive 'involution'-style competition.
- March 2025：
- At the national 'Two Sessions,' NDRC's Zheng Shanjie pledges to introduce targeted industrial structural adjustment plans.
- April 2, 2025：
- General Office of CPC Central Committee and State Council issue 'Opinions on Improving the Price Governance Mechanism'.
- April 20, 2025：
- 'Measures for the Implementation of the Fair Competition Review System' come into effect, prohibiting certain discriminatory local government policies.
- End of April 2025：
- China Iron and Steel Association announces plans to warn six steel companies over negative cash flow and increased crude steel production.
- In the first quarter of 2025：
- National industrial capacity utilization rate is 74.1%. Average accounts receivable turnover for listed photovoltaic companies rises to 127 days; equipment segment reaches 172 days.
- First five months of 2025：
- Fixed-asset investment in auto manufacturing grows by 23.4%.
- By June 2025：
- PPI (Producer Price Index) for industrial products remains negative for 33 consecutive months.
- June 1, 2025：
- 'Regulations on Ensuring Payment to Small and Medium-sized Enterprises' come into force, mandating clear payment deadlines to SMEs.
- June 2025：
- China Photovoltaic Industry Association guides companies to sign self-discipline pact on production control; China Cement Association issues 'Opinion on Further Promoting Anti-Involution in the Cement Industry.' Seventeen leading automotive companies announce a policy to shorten supplier payment terms to within 60 days.
- Between June 10–11, 2025：
- Seventeen automakers announce shortening of supplier payment terms to within 60 days.
- By the end of June 2025：
- Standing Committee of the National People’s Congress adopts amendments to the Anti-Unfair Competition Law, introducing new provisions against abuse of dominant market positions.
- June 29, 2025：
- People’s Daily publishes editorial under pen name Jin Sheping on 'involution' competition.
- July 1, 2025：
- Qiushi magazine publishes article under pen name Juli on 'involution' competition; Central Financial and Economic Affairs Commission holds its sixth meeting, emphasizing regulation of competition among enterprises, product quality, and withdrawal of outdated capacity; China Cement Association issues a document enforcing clinker capacity consistency.
- July 1, 2025：
- Goldman Sachs releases research on excess capacity in Chinese manufacturing sectors.
- July 7, 2025：
- Thirty-three construction enterprises jointly release an initiative against 'involution' in the construction sector.
- July 10, 2025：
- Shanghai Composite Index closes above 3,500 points.
- July 2025：
- Construction firms' open letter against involution; senior policy researcher comments to Caixin on broadening anti-involution efforts to emerging sectors.
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