China’s government has initiated a campaign to curtail aggressive price-cutting by domestic companies, which regulators warn is fueling excessive competition and damaging economic stability. As reported by Reuters, this “anti-involution” drive responds to mounting deflationary pressures stemming from industrial overcapacity and brutal price wars.
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Data from the IndexBox platform highlights the severe impact on corporate profitability, particularly in the electric vehicle sector. The median net profit margin for 33 listed Chinese automakers plummeted to just 0.83% in 2024, a dramatic fall from 2.7% in 2019. This compression is a direct result of intense competition, exemplified by a price war that erupted in 2023 among brands including BYD and Tesla.
The solar industry faces a similar crisis. Massive overcapacity has triggered losses in the photovoltaic manufacturing value chain estimated at $40 billion last year. Despite beginning restructuring, China’s current production capacity for wafers, cells, and modules is sufficient to meet annual global demand through 2032. Other sectors exposed to these destructive dynamics include lithium batteries, steel, cement, and food delivery, where tech giants are burning billions in subsidies to gain market share.
Economists note that changing consumer behavior, driven by expectations of ever-lower prices, risks entrenching deflation. This poses significant challenges for policymakers, complicating efforts to stabilize the $19 trillion economy. The situation is further strained by an unresolved trade dispute with the United States and President Donald Trump, intensifying pressure on factory profits. With youth unemployment at 17.8%, Beijing views curbing this hypercompetitive grind as essential for social stability.
