Commentary: To End ‘Excessive Competition,’ China Must Cure Its Economic Imbalance

Market competition is fundamental to a market economy, but China currently faces “excessive competition,” which goes beyond normal market behavior and undermines the sector's overall health. A striking example is the photovoltaic industry, where despite near-monopoly status and substantial state subsidies, companies sell at losses, violating basic market principles and leading to billions or even tens of billions of yuan in annual industry losses. This pattern reflects structural weaknesses in China’s macroeconomic environment and the prevailing form of government intervention[para. 1][para. 2].

A key underlying issue is insufficient aggregate domestic demand, as already singled out by policymakers. Structural imbalances persist: household consumption constitutes only 38% of GDP, the lowest globally and 20-30 percentage points below typical international levels. Even including government and corporate consumption, the share only reaches 54%. In contrast, China manufactures 31% of global industrial goods but only consumes 14% of them. This disconnect fuels both domestic and international overcapacity and competition[para. 3][para. 4][para. 5].

Current fiscal measures are inadequate, still emphasizing traditional infrastructure spending rather than public welfare, echoing early 20th-century American “New Deal” policies. Historical lessons suggest stronger focus on direct support to household consumption—such as through vouchers or cash grants—can generate a much larger economic multiplier (three to five times that of investment-focused subsidies). Meanwhile, monetary policy remains too conservative, with excessive priority given to exchange rate stability and bank profitability at the expense of broader macroeconomic objectives like economic growth and employment. Globally, no major economy has prioritized bank profits over economic recovery during downturns[para. 6][para. 7][para. 8][para. 9][para. 10][para. 11][para. 12][para. 13].

For these reasons, the author argues that fiscal and monetary policy should strongly pivot toward stimulating domestic demand, with an accelerated pace of reform. Without significantly expanding domestic consumption, “excessive competition” will likely persist[para. 14].

Another core challenge is a lack of innovation among Chinese enterprises. Chinese businesses have relied heavily on late-mover strategies such as cost-cutting and price competition—approaches now insufficient in China’s post-industrial, post-urbanization phase. Many entrepreneurs lack familiarity and comfort with innovation management and are reluctant to risk investment in new R&D, instead defaulting to traditional production function models. Education—both at universities and in executive MBA programs—lags in teaching innovation management, further delaying corporate transformation and reinforcing “excessive competition”[para. 15][para. 16][para. 17][para. 18][para. 19][para. 20][para. 21].

Local governments exacerbate the problem by using old tactics—free land, cheap energy, flashy tax breaks, vast subsidies—to attract investment, especially in already-saturated sectors. The heavy annual public spending on production and export subsidies often exceeds direct support to consumers, reflecting a misplaced focus and deep-rooted mindset issues at all levels of government. True reform, the author suggests, requires a radical shift in government involvement—from subsidizing oversupply to supporting consumption and long-term innovation[para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28].

Cultural phenomena such as “involution”—the relentless, often self-defeating pursuit of incremental advantage—compound the economic challenges. Respect for labor costs, both at the managerial and worker level, is lacking, further distorting competition. The author stresses that resolving “excessive competition” requires establishing fair labor compensation and transitioning to sustainable business practices[para. 29][para. 30][para. 31][para. 32][para. 33][para. 34].

However, the excessive competition problem is likely a transitional phase. As China advances innovation management and shifts policy focus to consumption and sustainable growth, industries are expected to evolve beyond this stage—mirroring the transformation already observed in the white goods sector. The photovoltaic and EV sectors may soon follow suit, embracing innovation-led growth and ushering in a new era for the Chinese economy[para. 35][para. 36][para. 37][para. 38].