China's ‘involution' trap is hurting nation's competitiveness, state media warns

The Star

27-04-2025

Chinese state media has refreshed its calls for local-level governments and businesses to refrain from unhealthy, exhausting competition that is feared to be damaging the competitiveness of the nation's economy, as the issue remains a headache for Beijing.
A self-defeating cycle of excessive competition – known as neijuan , or involution – has remained prevalent, distorting market dynamics and hindering sustainable growth, the Economic Daily warned in a commentary on Wednesday, as the issue has been a focal point in the past year.
Explaining the term as 'the harder you work, the less you gain', the state-owned newspaper focusing on economic reports urged government officials and business owners to focus on long-term economic health rather than short-term gains.
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Such a phenomenon 'traps all kinds of entities in a vicious cycle of low-price, low-quality, and ineffective repeated competition, ultimately damaging the overall competitiveness of related industries in China', it said.
Among local governments, that type of self-defeating competition includes misguided efforts to attract businesses through unsustainable policies – such as offering excessive incentives like tax breaks and subsidies – resulting in rising debt and long-term risks, the newspaper noted.
For businesses, 'involution' manifests in excessive price wars, a lack of differentiation, and a focus on short-term profits at the expense of long-term innovation, which leads to resource waste, stagnation and lowered overall competitiveness.
The commentary used solar energy as an example, with the output value of China's photovoltaic manufacturing industry slumping by more than 40 per cent in the first 10 months of 2024 from the same period of 2023.
In March, Premier Li Qiang vowed to launch a 'comprehensive crackdown on neijuan ' during his work report to the National People's Congress – the first time the premier has mentioned the once-obscure concept in his agenda-setting annual address.
In what has been seen as a response to Beijing's push to stop vicious competition, e-commerce platforms jointly announced on Tuesday that they would abandon a 'refund-only' policy that has been criticised for straining merchant profit margins.
Major platforms such as Taobao and Pinduoduo will no longer proactively intervene in after-sales requests made by consumers for refunds without returning the goods that they have already received. Such issues will be left to sellers and buyers to negotiate instead, in a move to balance merchant-rights protection with an improved consumer experience, they said.
Taobao is operated by Alibaba Group, which owns the South China Morning Post.
JD.com, the parcel-logistics services giant that expanded to food delivery earlier this year, and on-demand delivery firm Meituan have been accusing each other this week of the monopolistic behaviour of blocking part-time delivery riders from accepting orders on both platforms.
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