Competition in China is often far more cutthroat than in the United States. America has a handful of carmakers; China has more than 100 electric vehicle makers struggling for market share. China has so many solar panel makers that they produce 50 percent more than global demand. About 100 Chinese lithium battery producers churn out 25 percent more batteries than anyone wants to buy.
This forces Chinese manufacturers to innovate, but it also leads to price wars, losses and bad debt — and that’s becoming a problem.
China is heading toward deflation, the often catastrophic downward spiral of prices that sank Japan in the 1990s. Its leaders are blaming a culprit they call “involution” (“neijuan” in Mandarin), a term that has come to mean reckless domestic competition. They want to rein it in by browbeating companies into keeping prices steady and instructing local governments to scale back subsidies.
It won’t work. At best, those are temporary fixes for China’s more fundamental problem. Its economy relies so heavily on investment for growth, rather than consumer spending, that it produces enormous surpluses that wreck profits at home and provoke trade wars abroad.
China’s infatuation with the term involution dates to the 1960s and the work of an American anthropologist, Clifford Geertz, who argued that Indonesia wasn’t able to feed itself because population growth had outpaced improvements in agricultural productivity. Geertz used involution — an anthropological term for a culture that fails to adapt and grow — to describe this doom loop. His analysis resonated in a China that at the time was struggling to feed its own people, the world’s largest population.
The term gained traction in China during the pandemic, when young people used involution to describe the pressure they felt to get ahead in a stagnant economy. In 2020, a video went viral of a Tsinghua University student peddling his bike at night while working on a laptop propped on his handlebars. Posts related to involution were viewed more than one billion times by the following year.
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