Market Update: China’s Economic Involution: State and Business Strategies – Full Analysis

[1] This article focuses on involution in industrial sectors. The term “involution” can be used to describe intense competition in other spheres of Chinese society as well, such as education. For a broader definition, see Patricia Thornton, “Punching Down: Beijing’s Playbook for Unwinding ‘Involutionary Competition,’” China Leadership Monitor, issue no. 86, 2025.

[2] Tianlei Huang, “China’s Looming Property Crisis Threatens Economic Stability,” RealTime Economics, Peterson Institute for International Economics, 2022.

[3] Yusho Cho, “China’s Local Debt Rises to $18.9tn as Property Slump Lingers.” Nikkei Asia, December 3, 2025. https://asia.nikkei.com/business/markets/china-debt-crunch/china-s-local-debt-rises-to-18.9tn-as-property-slump-lingers.

[4] Ling Chen, “Getting China’s Political Economy Right: State, Business, and Authoritarian Capitalism,” Perspectives on Politics 20 (4):1397–1402.

[5] Meg Rithmire, “China’s Perilously Imbalanced Economic Success,” Current History, September 2025.

[6] Michael Pettis, “What’s New about Involution?” Carnegie Endowment for International Peace, August 26, 2025.

[7] Ling Chen, Manipulating Globalization: The Influence of Bureaucrats on Business in China. (Stanford, CA: Stanford University Press, 2018); Yuen Yuen Ang, How China Escaped the Poverty Trap (Ithaca, NY: Cornell University Press, 2017).

[8] Gerard DiPippo, “Changing Course in a Storm: China’s Economy in the Trade War,” China Leadership Monitor, issue no. 85, Fall 2025.

[9] Alexandra Stevenson, “China’s Birthrate Plunges to Lowest Level Since 1949,” New York Times, January 18, 2026. https://www.nytimes.com/2026/01/18/business/china-population-data.html.

[10] Edward White, “China’s Industrial Profits Plunge as Weak Demand and Deflation Bites,” Financial Times, December 27, 2025.

[11] 蔡真, “买来的出口数据：耗费地方财政，对经济无实质带动.” 第一财经, December 29, 2025.

[12] “2025年十大内卷行业,” 新浪财经，https://finance.sina.com.cn/roll/2025-09-13/doc-infqkhhe8180064.shtml, September 13, 2025. Robin Xing and Zhipeng Cai, “Anti-Involution- Priority, Progress and Potential: Market, Sector and Stock Implications.” Morgan Stanley Research Note, September 1, 2025.

[13] 陶川、张云杰、钟渝梅, “反内卷”的下一步,” 华尔街见闻, July 3, 2025,

[14] DiPippo, “Changing Course in a Storm”; “十年前 ‘去产能,’ 十年后  ‘反内卷’?” 尤斯财富, July 22, 2025. https://www.usewealth.com/Information/Details.aspx?i=136134.

[15] 陶川、张云杰、钟渝梅, “‘反内卷’的下一步,” 华尔街见闻, July 3, 2025, https://wallstreetcn.com/articles/3750355.

[16] Lizhi Liu, From Click to Boom: The Political Economy of E-Commerce in China (Princeton, NJ: Princeton University Press, 2024).

[17] “Involution Fueled Alibaba’s E-Commerce Comeback,” November 5, 2025, https://www.hardingloevner.com/insights/involution-fueled-alibabas-e-commerce-comeback/.

[18] Tianlei Huang, “China’s Looming Property Crisis”; Andrew G. Walder and Xiaobin He, “Public Housing into Private Assets: Wealth Creation in Urban China,” Social Science Research, 46 (2014): 85–99. doi: 10.1016/j.ssresearch.2014.02.008.

[19] Stella Yifan Xie and Mike Bird, “The $52 Trillion Bubble: China Grapples With Epic Property Boom,” The Wall Street Journal, July 16, 2020.

[20] Cao Li, “China’s Property Developers Cut Prices—and Homeowners Are Resisting,” The Wall Street Journal, November 1, 2023.

[21] Chen Bo, “China’s Top Cities Face Office Glut with Supply Doubling Demand in 2025,” Caixin Global, January 10, 2026.

[22] 邹碧颖, 孙颖妮, “九大行业调研, 万字详解中国反内卷风暴,” 财经, https://cj.sina.com.cn/articles/view/6233406682/1738a3cda01901b3fm, August 20, 2025.

[23] Cao Li, “China’s Property Developers Cut Prices.”

[24] Kenneth Rogoff and Yuanchen Yang, “China’s Real Estate Challenge,” Finance & Development 61 (2024): 2832.

[25] Cao Li, “China’s Property Developers Cut Prices.”

[26] Reuters, “中国多地对房企‘跳水’降价进行约谈，严格控制恶意降价扰乱市场秩序行为,” September 9, 2021. https://www.reuters.com/article/markets/asia/-idUSL4S2QC0D3/.

[27] Wang Jing, “China’s Property Slump Knocks Half of Top Developers off Key Ranking,” Caixin Global, January 5, 2026. https://www.caixinglobal.com/2026-01-05/chinas-property-slump-knocks-half-of-top-developers-off-key-ranking-102400361.html.

[28] Of course, SOEs also face a crisis. Even Vanke, which started as a private firm and became increasingly state-dominated, had to face a huge debt that the state was not able to rescue.

[29] Themis Qi, “China’s EV Makers Face Slowdown in Export Growth After Doubling in 2025,” South China Morning Post, January  15, 2026, https://www.scmp.com/business/china-evs/article/3339919/chinas-ev-makers-face-slowdown-export-growth-after-doubling-2025. Ilaria Mazzocco, “Canada and the European Union: Two New Wins for Chinese Exports in the West,” Center for Strategic and International Studies, January 22, 2026,  https://www.csis.org/analysis/canada-and-european-union-two-new-wins-chinese-exports-west .

[30] Daniel Ren, “Beijing Renews Trade-in subsidy Scheme Amid Domestic Car Market’s Gloomy Outlook,” South China Morning Post, https://www.scmp.com/business/china-business/article/3338281/beijing-renews-trade-subsidy-scheme-amid-domestic-car-markets-gloomy-outlook, December 31, 2025. The difference is that starting in 2026, the vehicle sales tax will be charged at half-rate instead of a complete exemption.

[31] EVBoosters, “400 Chinese EV Companies Ceased Operations between 2018 – 2025, Only a Few Will Dominate Towards 2030,” https://evboosters.com/ev-charging-news/400-chinese-ev-companies-ceased-operations-between-2018-2025-only-a-few-will-dominate-towards-2030/ .

[32] 邹碧颖, 孙颖妮, “九大行业调研”; Dong Yi Chen, “Profit Margin of China’s Auto Industry Was 4.4 Percent,” https://carnewschina.com/2025/12/27/profit-margin-of-chinas-auto-industry-was-4-4-2000-usd-per-vehicle-second-lowest-in-history-jan-to-nov-2025/. December 27, 2025.

[33] Daniel Ren, “Dozens of Chinese EV Makers Under Pressure to Fold Ortrim Operations in 2026,” South China Morning Post, December 28, 2025.

[34] “新能源汽车产业链“肥瘦”不均,” 新浪财经, https://finance.sina.com.cn/roll/2024-08-26/doc-inckyeri4934301.shtml. August 26, 2024.

[35] “Chinese Dealers Call for Auto Brands to Balance Inventory Levels to Help Ease Glut,” Reuters, January 13, 2026. https://www.reuters.com/business/autos-transportation/chinese-dealers-call-auto-brands-balance-inventory-levels-help-ease-glut-2026-01-14/.

[36] To be sure, the real estate sector has more concentrated risks in terms of generating significant bubbles compared to the car manufacturing industry. But some of the overleveraging practice by EV producers, as will be shown, also causes concerns about long-term liquidity.

[37] Vision Times News, “BYD Faces Mounting Inventory and Surging Debt as Quality Complaints Flood the Internet,” https://www.visiontimes.com/2025/12/16/byd-faces-mounting-inventory-and-surging-debt-as-quality-complaints-flood-the-internet.html. December 16, 2025.

[38] 梁耀丹, “负债规模接近瑞士全年GDP! 光伏储能电车“新三样”还好吗?” https://finance.sina.com.cn/stock/zqgd/2025-08-28/doc-infnrhci4238703.shtml. August 28, 2025; Vision Times News, “BYD Faces Mounting Inventory and Surging Debt.”

[39] “BYD Shifts Away From In-house Payment System that Strained Suppliers, Sources Say,” Reuters, November 14, 2025. https://www.reuters.com/sustainability/boards-policy-regulation/byd-shifts-away-in-house-payment-system-that-strained-suppliers-sources-say-2025-11-14/. In addition, in 2025 BYD  required that suppliers cut prices by 10 percent, which also aroused criticism. Although foreign brands like Tesla have also used IOUs for suppliers, the pay period has not exceeded 60 days. The fact that D-link notes can be used as finance tools is  another distinctive feature.

[40] 梁耀丹, “负债规模接近瑞士全年GDP.”

[41] “比亚迪减少‘迪链,’ 改用它.” 新浪财经, January 13, 2026, https://finance.sina.com.cn/stock/relnews/hk/2026-01-13/doc-inhhcnuc5064522.shtml.

[42] 彦飞, “车圈的‘比亚迪病’，60天治不好,” 新浪财经, June 16, 2025. https://finance.sina.com.cn/tech/csj/2025-06-16/doc-infaheke3117901.shtml.

43 “习近平罕见直批地方扎堆发展新能源和AI: ‘反内卷’运动背后的政绩焦虑,” BBC News 中文, July 24, 2025. https://www.bbc.com/zhongwen/articles/c62824dx6pko/simp.

[44] “实名举报县委书记, 山东通报,” 新浪财经, July 25, 2023.  https://finance.sina.cn/2023-07-25/detail-imzcxqem9333760.d.html.

[45] “车企暴雷谁最惨? 40万车主成牺牲品, 5000员工被拖欠4.6亿,” September 17, 2025. https://news.qq.com/rain/a/20250917A01CU500.

[46] “习近平罕见直批地方扎堆发展新能源和AI.”

[47] 陶川、张云杰、钟渝梅, ‘反内卷’的下一步,” 华尔街见闻, July 3, 2025. https://wallstreetcn.com/articles/3750355.

[48] “中华人民共和国反不正当竞争法,” https://www.spp.gov.cn/spp/fl/202506/t20250627_699862.shtml, June 26, 2025. Another law that regulators often invoke and use is the Anti-Monopoly Law of China.

[49] Minxin Pei, “Same Strategy, But Different Emphasis: Main Takeaways from the Central Committee’s Proposals for the 15th Five-Year Plan,” China Leadership Monitor, issue no. 86, 2025.

[50] 自然资源部, “关于做好2024年住宅用地供应有关工作的通知,” March 1, 2024, https://cn.chinadaily.com.cn/a/202405/01/WS66321ef4a3109f7860ddbfdc.html.

[51] Jeff Pao, “Beijing Mulls Buying Unsold Homes for 4 trillion Yuan,” Asia Time, November 1, 2024. https://asiatimes.com/2024/11/beijing-mulls-buying-unsold-homes-for-4-trillion-yuan/.

[52] For property-related industries, such as construction, cement, concrete, other building materials and furniture, the price control situation is different. Industry associations tried to regulate by issuing suggested rules to these industries.

[53] See the section in this article on the real estate sector for more details.

[54] 彦飞, “车圈的 ‘比亚迪病.’” 中华人民共和国国务院, “保障中小企业款项支付条例,” March 25, 2025, https://www.mee.gov.cn/zcwj/gwywj/202503/t20250325_1104643.shtml; 吴遇利, “特斯拉比亚迪长城等签承诺书：不以非正常价格扰乱市场公平竞争秩序,” 澎湃, July 6, 2023, https://www.thepaper.cn/newsDetail_forward_23750708..

[55] Ren, “Beijing Renews Trade-in Subsidy Scheme;” Thornton, “Punching Down: Beijing’s Playbook.”

[56] “习近平罕见直批地方扎堆发展新能源和AI.”

[57] Scott Kennedy, “Involution and Industry Self-Discipline: Echoes from the Past,” CSIS, September 17, 2025. https://www.csis.org/blogs/trustee-china-hand/involution-and-industry-self-discipline-echoes-past.