One of the root problems facing China’s economy is “involution”. Intensified corporate competition and continuous promotional campaigns have driven down commodity prices. While this may seem to benefit consumers in the short term, over the long run, it inevitably harms many people’s jobs and incomes. Falling product prices, shrinking profits, corporate layoffs, and reduced consumption form a deflationary spiral, which is widely regarded as a sign of economic downturn.
On July 1, the sixth meeting of the Central Commission for Financial and Economic Affairs sent a strong signal, calling for the regulation of cutthroat, disordered price competition in accordance with laws and regulations. It urged enterprises to improve product quality and promote the orderly exit of outdated production capacity. This marks the first time in a decade that capacity reduction has once again been elevated to a national action level, following China’s 2015 supply side reform. On July 18, the Ministry of Industry and Information Technology (MIIT) announced that key industries would focus on structural adjustments, quality supply and elimination of outdated capacity, with specific plans to be rolled out soon.
The MIIT specifically named ten industries, including steel, nonferrous metals, petrochemicals, and building materials. However, this new wave of the anti-involution campaign is rapidly spreading. Many sectors not originally within the policy’s scope are now voluntarily responding.
