China’s Economic Involution: State and Business Strategies

Ling Chen CLM Issue 87 March 2026.pdf

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China’s economic involution, characterized by cutthroat, race-to-the-bottom competition, is a symptom rooted in its political and fiscal structure. During the recent economic downturn, the central government, local governments, and businesses entered a self-reinforcing cycle. The central growth targets and debt-reduction pressures pushed local governments to expand investment in state-favored industries, creating low-profit competition and oversupply. The declining revenues further reduced demand, but businesses must expand production to survive. An examination of real estate and electric vehicles suggests that these sectors share similar dynamics: excessive capacity, slow turnover, declining prices, and high financial leverage. But they also differ in terms of dominant players, market expansion success, and the role of local governments. The central government’s recent anti-involution campaign has encountered difficulties because, while it cracks down on over-investment and excessive competition, it simultaneously pursues GDP targets and industrial growth. Instead, the central government should realign its policy goals with local actors.

As China’s economic downturn continues into another year, “involution” (内卷) has become the buzzword of the moment, causing much anxiety among leaders, businesses, and the broader public. The term refers to excessive, race-to-the-bottom competition with aggressive price cuts and thin profit margins, which have occurred across a wide range of sectors, such as real estate, electric cars, solar equipment, chemicals, and platform delivery.[1] Low-priced competition is also associated with overcapacity, excessive supply, and low capacity utilization. As criticism mounted and the negative economic consequences accumulated, the central government under Xi’s leadership launched an anti-involution (反内卷) campaign.

This article starts with the deeper roots of economic involution—the fundamental political, economic, and fiscal structure causing the relentless competition—and traces the self-reinforcing cycle that propelled businesses and bureaucrats to continue pursuing involution. The article also shows how state and business strategies, as well as the dynamics of involution, play out in the real estate and electric vehicle sectors. These two sectors, which share similar characteristics in terms of declining profits, excessive supply, and high debt, differ in their market expansion prospects, available regulatory tools, and the preferences of the state and businesses. As China began to undertake anti-involution measures in these sectors, they also carried distinctive implications for the success or failure of the anti-involution campaign. The cases represent dynamics across a wider range of industries where the iteration of state and business strategies has shaped their development trajectories. The article ends by calling for a realignment of the central policy goal with the incentives of local governments and firms.

State and Business in the Long Shadow of the Economic Slowdown

China’s economic slowdown since 2020 has heavily influenced and reinforced the behavior of local governments and businesses. The burst of real estate bubbles has crumbled a sector that once accounted for 20 percent to 30 percent of GDP and 27 percent of all bank loans.[2] Other debt linked to land financing has further contributed to the economy’s fiscal stress, pushing local debt to $18.9 trillion by late 2025.[3] As an authoritarian country built on economic legitimacy, reviving the economy and meeting growth targets have always been key tasks.[4] Within this context, the central government has been using a series of economic targets, such as the GDP growth rate, the export growth rate, and the industrial growth rate, to monitor the economy and evaluate local governments.

Local governments have been deprived of the most important engine of GDP growth and fiscal revenue since the post-COVID period, and furthermore, they faced huge debts from the property sector while financing local infrastructure and welfare.[5] As such, investing resources to expand the manufacturing industries through government subsidies, loans, tax incentives, and other beneficial policies became the primary method of pursuing economic growth. Most of the heavier subsidies are concentrated in several industries encouraged by the central Chinese state (AI, electric vehicles [EV], wind), leading to repeated construction (重复建设) of these industries across different Chinese localities.[6] Depending on the province, there are also broad subsidies that promote industrial and economic growth across sectors.

This playbook sounds similar to the strategies to attract local investment in the 1990s and 2000s,[7] except that now there are not enough domestic markets to absorb the amount of goods produced. The economic stress has been passed on to consumers, whose household incomes also heavily rely on the real estate sector. They would rather build up savings.[8] As consumption entered a long-term slump, it could no longer serve as the primary driver of GDP growth. The drop in the birth rate to its lowest level in history further added to the fiscal stress.[9] This situation pushed local governments to invest even more in industries to promote growth, expanding the supply side and contributing to excessive capacity. When domestic consumption shrinks, expanding export markets can be, and have been, another crucial strategy for local governments, especially for manufacturing industries with a competitive edge. But in an era of de-globalization, Chinese producers must compete amongst themselves at low prices for limited quotas in foreign markets.

The involution of Chinese businesses thus occurred in a context of mutually interlocking interests between government and business players. Firms in the same industry competed fiercely at cutthroat prices, backed by local government subsidies and other favorable policies. Consumers who were hit by deflation were also inclined to purchase low-priced items, if they purchased at all. As businesses scrambled for markets within the sector, dominant players often used whatever resources they had (sometimes at the cost of excessive financial leverage) to pursue a low-price strategy to knock out competitors and achieve a monopoly. Smaller players, on the other hand, aimed merely to survive at razor-thin profit margins and would perish if they raised prices. In November 2025, for example, industrial profits fell 13.1 percent year on year, wiping out almost all of the profit increase in 2025.[10]

Hence, the central state, local government officials, and firms have entered a self-reinforcing cycle in which the state sets a growth target, and local officials aim to achieve it by subsidizing industrial firms and investing in expanding industrial capacity. As an increasing number of firms enter these industries, fierce competition spreads across the sector, driving down profit rates. The industry’s and employees’ declining revenue, together with the housing slump, exerted downward pressure on the local economy and household income, further shrinking demand, making supply more excessive, and, ironically, driving prices down even more. Figure 1 specifies the incentives driving the behavior of central and local actors.

Figure 1. Incentives Driving State and Business Actors

Local officials and businesses also colluded to obtain subsidies at the expense of the subsidies’ original purpose. It was recently reported that in several provinces, a comprehensive operational chain called “export data purchase” has been widely used. Businesses set up a shell company and submitted fake export numbers obtained from another company’s export data. After they used the export data to secure grants and subsidies from local governments, the shell company closed its businesses. Local officials would tacitly agree to do this to expand export numbers that help build political achievement, while also obtaining personal kickbacks in the process.[11] Some officials in the commerce bureau even directly assign quotas to local enterprises to ensure that they meet the desirable economic target set by the upper level. Will the central state stop setting targets for localities, or will local governments entirely give up helping industries when the property sector is no longer an option? As will be discussed later, this is unlikely in the short- to mid-term. Therefore, involution became a manifestation of the self-reinforcing system among the central government, local officials, and businesses.

An Industrial Sector Perspective

It would be difficult to measure the exact “degree” of involution. Still, observers, in and out of China, have relied on proximate indicators, such as the proportion of loss-making companies in a given sector, gross profit margin, return on equity, inventory turnover or asset turnover speed, and the sales-to-stock rate or capacity utilization rate.[12] Overall, China’s Producer Price Index (PPI) has declined continuously since October 2022 and has remained in the range of –2 to –3 for 38 months, even as industrial output has increased.[13] Similarly, the average export price per unit has been decreasing and has fallen much more steeply than that in other emerging economies, even though reported export amounts have been increasing.[14] The capacity utilization rate for manufacturing industries has steadily declined since 2021, reaching a low of 74 percent in 2025.[15] 

A variety of sectors have demonstrated characteristics of involution using the above criteria, with the top sectors ranging from EVs and solar panels to garments, steel, chemicals, platform deliveries, and, of course, real estate. These sectors all share the characteristics of thin profit margins, slow turnover, low capacity utilization, and relatively high stock levels. That said, each sector has its own trajectory toward involution, with firms and the government adopting varied strategies that embody a combination of state capitalism and market capitalism. Such variation also entails different costs and solutions to their problems. This article selects the real estate and the EV sectors as representative examples of involution. These two sectors have been major engines of growth for the local economy, with the former being the bubble sector and the latter being the new energy manufacturing sector. Both have experienced a high level of supply relative to demand, excessive capacity across provinces, continuously decreasing prices and profits, and high financial leverage supporting investment. Private businesses, state-owned enterprises (SOEs), and local governments have all been involved in the development, involution, and anti-involution processes of these two sectors, making them interesting cases for examination. That said, these two sectors differ in terms of challenges and risks, developmental stages, market expansion success, the role of SOEs, and the alignment of interests among central governments, local governments, and businesses.

Of course, other sectors have different characteristics in terms of their causes of and solutions to involution. The platform delivery sector, which has attracted much attention due to its recent brutal price wars, is a case driven mainly by business. Unlike the real estate and EV sectors, the central and local governments have not played a significant role in driving involution and price wars. In fact, the rise of e-commerce challenges the usual assumptions about state-business relations, as it is increasingly untethered from a particular locality.[16] Meituan, which used to be a dominant player in food delivery, was challenged by Alibaba and JD. The latter two entered delivery services at more competitive prices, drawing on their financial resources and supplier networks to reshape the sector. This competition has driven down prices for food delivery and restaurants, at a high cost ($22 billion for Alibaba), but not necessarily with high debt. And more importantly, because it was largely caused by several big platform companies, countering their involution was less complicated, as regulators only had to contain the behavior of these companies.[17] However, regulating markets in many other sectors is often complex, requiring the central government to adjust how it manages local economies and to consistently implement policies.

Real Estate: The Collapse and Rescue of a Bubble Sector

The crumbling of the real estate sector has had a shattering effect on the entire economy, and the story of China’s economic involution should begin with this sector. Since the 2000s, an essential part of China’s economy and revenue—20–30 percent of GDP, 40 percent of local revenue, and up to 70 percent of household income—has been built on the real estate sector.[18] At the peak of the boom, right before 2021, the total stock of China’s housing market reached $50 to $60 trillion, three to four times China’s nominal GDP.[19] The real estate sector represents the bubble sector, or what Xi Jinping calls the “gray rhino” (灰犀牛) sector, characterized by price hikes and financial risks. The direct trigger for the burst of the property bubbles was the central government’s issuance of its three redline policies. As an increasing number of high-leverage real estate firms exploded and were driven out of the market due to their debt structures, existing firms began to panic and sought to sell their stock at much lower prices.

The collapse of the property sector and housing prices led to an oversupply of property and a drastic drop in demand, which in turn caused a long-term slump and drove down housing prices further. In 2022, some developers, both in coastal cities such as Shenzhen and in inland cities such as Wuhan, listed properties at half the price at which other units in the same complex were sold for in 2020 and 2021. Others started experimenting with zero down payment policies. This situation aroused strong resistance from existing homeowners, prompting local industrial regulators to cancel such sales out of concern for the social impact.[20] Office buildings faced an equally dire situation, with supply exceeding demand by more than double in key cities.[21] 

The real estate downturn also caused a long-term slump in other directly connected sectors. Local government financing vehicles, banks, investors, and customers of investment trusts associated with real estate developers were all dragged into similar debt crises caused by over-leveraging. The upstream and downstream manufacturing suppliers, such as building materials (cement, glass) and furniture, also experienced excess supply amid declining demand, leading firms in these industries to engage in price wars. In Chongqing, prices of some construction materials declined by almost 70 percent, and prices for concrete dropped by almost 50 percent. In other words, the real estate sector and its affiliated industries can no longer profit from the former strategy of “overleveraging as far as one can,” and they are now merely surviving through price cuts.[22] 

The real estate sector has two distinctive features in comparison to other sectors. The first is the relatively strong and direct state regulation of the lowest prices at both the central and local levels. Recognizing the sector’s importance, the state has set a floor to prevent prices from falling to the bottom, requiring developers to register their prices before selling.[23] While prices have dropped by 10 percent to 30 percent, depending on the city, setting a floor price was essential to prevent the situation from worsening.[24] What concerns the state here is not only the economy but also the social unrest among citizens and homeowners that accompanies devaluation and default. This concern became especially serious after the attack on price-cutting of developers’ office buildings, and protests for compensation among homeowners were reported across localities.[25] Local governments began holding formal meetings (约谈) with price-cutting firms after the emergence of excessively low prices.[26]

The second key feature is the increasing dominance of SOEs, especially since the start of the housing crisis. The majority of the remaining top real estate developers are SOEs rather than private developers. SOEs such as Poly are less indebted and are perceived to be less financially vulnerable than private developers, some of which have adopted illegal leverage measures, leading to a later explosion. [27] The dramatic collapse of Evergrande, the world’s most indebted developer with $300 billion in debt, exposed deep crony ties between private firms and officials. Country Garden, which previously was a top private firm across all sectors, suffered a debt crisis of more than 1 trillion RMB. Such a perception in favor of SOEs also made it easier for SOEs to find customers, despite the sector’s overall excess capacity.[28] Local governments, on the other hand, have used various measures to remove house purchase restrictions and to encourage property market consumption, even though these measures do not appear to have yielded any real results yet.

Electric Vehicles: Brutal Competition and Financial Risks

The fierce competition among EV producers and their declining profits often placed the sector at the top of the list of sectors experiencing involution. But unlike the real estate sector, which entered a downward spiral after the bursting of the bubbles, the EV sector is still at the stage of massive growth. It has not yet triggered a systemic crisis, even amid fierce price cuts and the bankruptcy of many firms. While the industry has been characterized by some as having overcapacity, sales have thus far been increasing, especially in the export market (which doubled in 2025), leading to China surpassing Japan and becoming the world’s largest auto producer.[29] The central and local governments implemented industrial policies through cash subsidies, tax incentives, and bank loans, which have been crucial at the early stages of development. In addition, Beijing has offered continuous subsidies for EV purchases and recently decided to renew such subsidies amid deflationary pressures.[30]

The sector flourished with hundreds of producers across China’s localities since the mid-2010s, but since 2018, 400 producers have ceased operations due to fierce competition.[31] Of the remaining 100, several large producers dominate the market, with BYD leading in both domestic and foreign markets. Like other sectors that experienced involution, EV producers have faced brutal price wars and various discount measures over the past three years, along with a continuous drop in profit rates. The profit margin dropped from 7.8 percent in 2017 to 4.3 percent in 2024 and 4.4 percent in 2025, representing the two lowest years in history.[32] It is estimated that about 50 unprofitable mainland Chinese EV makers will have to cut back their operations in 2026.[33] While leading firms like BYD have had profit margins of about 5 percent, others are not as lucky: SAIC and BAIC (0 percent), Geely and Chery (1 percent), and Dongfeng (recording a loss of –1 percent) in 2025.[34] Many others have filed for bankruptcy. Meanwhile, auto dealers have been urging automakers to stop offloading excess cars on them, as price wars have driven some of them out of business.[35] 

Behind the brutal price competition of EVs is rising debt, which makes it relevant to compare it with the real estate industry’s overleveraged issue.[36] Wei Jianjun, chairman of Great Wall Motors, mentioned in an interview that the “Evergrande” in the auto sector (汽车行业的恒大) had already emerged; it just had not yet exploded. Some of the top auto producers, like BYD, have easier access to loans from banks and local governments and have incurred a huge amount of debt, including BYD’s 61.2 billion yuan (with a debt ratio of more than 70 percent), surpassing SAIC’s 57.3 billion yuan and Geely’s 49.8 billion yuan.[37] This means that in 2025, BYD’s debt increased by 641 percent from the start of the year, while profits fell by almost one-third. Other producers, such as NIO and Seres, have lower total debt but higher debt ratios of 87 percent.[38] 

Adding to formal loans is the informal and problematic practice of cutting costs by significantly delaying payments to suppliers. Pioneered by BYD, the strategy is called D-chain (迪链), which represses supplier prices and delays payment to suppliers for up to 270 days (and, in practice, can be as much as a year) by issuing interest-free IOUs (D-chain notes). The strategy helps reduce current costs and makes the selling price to customers as attractive as possible. Suppliers can use these notes as financing tools, but ironically, they have to pay interest if they need the money earlier. Other EV producers have copied such a practice as well.[39] The total amount of IOUs and accounts payable for each producer ranged from 5 billion yuan for Dongfeng (49 percent of revenue) to 250 billion yuan for BYD (31 percent of revenue), but for companies like Leapmoter, the ratio is 59 percent.[40] In 2025, state regulators and industrial associations began requiring the use of formal bank loans instead of informal notes (such as D-chain notes), but informal notes still dominate, and real change will take a long time. Even if informal notes were to be replaced by formal bank notes, this would not reduce the substantial debt added to the enterprise.[41]

Another potentially problematic practice, associated with using low prices to increase sales volume, is to tacitly and systematically turn new cars into zero-mileage second-hand cars (零公里二手车), which has occurred in both domestic and export markets. The practice reduced a company’s existing stock, thereby easing overcapacity pressure, and at the same time artificially increasing sales volume by pricing cars at a used-car level without blatantly violating price regulations. Many car producers used such a strategy to create a false image of a hot-selling product. It also lowered the costs of after-sales service for customers (since used cars do not require such service), and, importantly, utilized state subsidies targeted at second-hand cars. Just as with informal IOU notes, regulators began to curb such practices in late 2025, but whether there will be real changes remains to be seen.[42]

Why would it be rational for a producer to lower the current price as much as possible at the cost of high debt while raising the risk of defaulting or even bankruptcy in the future? One can simply point to the need for short-term survival, and indeed that is the case for smaller firms that aim to carry over the worst several years. For them, raising prices would mean losing the entire market, and going out of business is still worse than competing at throat-cutting prices. But for big players like BYD, the goal is to use low prices to dominate the market and knock out competitors before the producer can raise prices under a market monopoly.

In addition to business strategies, local governments, which have already suffered from the collapse of the real estate sector, have certainly jumped at the opportunity of EVs becoming a source of economic growth and political targets. Their support in land, subsidies, and loans directly contributed to EV producers’ competitive strategy and enabled them to survive in fierce competition. Examples abound, such as Xpeng’s support from the Guangdong government, Li Auto’s support from the Beijing government, and NIO’s support from the Anhui government.[43]

However, such strategies have recently incurred increasing costs, showing warning signs. Smaller players may go out of business, especially when governments can no longer bail out firms. Levdeo, an EV company, received a loan of more than 1 billion yuan in 2018 from a local SOE owned by the Changle government in Shandong province to expand its business. But after the central government issued policies against such behavior, the Changle government decided in 2023 to cut off its finances. Levdeo’s owner fought back by exposing Changle’s party secretary, who forced the company to report a fake figure of 7 billion yuan in EV output, rather than the real figure of 2.5 billion yuan, to show an increased political achievement.[44] But Levdeo’s substantial sales decline and financing problems still forced it into bankruptcy. Similar stories occurred with Neta Auto, which adopted a low-price, negative-profit strategy to enter the market but ran out of financing from local government-backed state-investment firms across multiple localities (e.g., Tongxiang, Ningbo, Nanning) and entered into bankruptcy, with 26 billion yuan in debt and large unpaid service obligations to its suppliers.[45] In addition to Neta, Niutron, Weltmeister, HiPhi, Jidu, and Qoros recently went bankrupt as well. Large players like BYD may not face the same challenges, as their sales markets continue to expand domestically and internationally. However, the high-leverage finance model, which relies heavily on IOUs, rests entirely on the assumption that market sales must continuously expand.

The Anti-Involution Campaign and Its Bottlenecks

Due to a variety of economic and social stresses stemming from industrial involution, especially amid a downward economic trajectory, the Chinese state has launched an anti-involution campaign. In March 2025, at the end of the Two Sessions, Xi Jinping mentioned the importance of “anti-involution” and industrial self-discipline. In July 2025, at an urban city conference, Xi criticized local governments:

Whenever we invest in any projects, it’s always the same: AI, computing, new energy cars. Does it mean that all provinces in China have to develop these industries? (上项目, 一说就是几样：人工智能、算力、新能源汽车，是不是全国各省份都要往这些方向去发展产业?)[46] 

At various central economic conferences and during local visits between 2024 and 2025, Xi has attributed the root cause to local officials and undisciplined enterprises.[47] Following such comments, in June 2025, the National People’s Congress revised and issued the Anti-Unfair Competition Law of the People’s Republic of China, seeking to maintain market order and defining the scope of unfair competition as well as the rights and obligations of regulators.[48] China’s 15^th Five-Year Plan, which was approved in late 2025, seeks to combat local protectionism and “comprehensively rectify involutionary competition” (综合整治内卷竞争).[49] 

While the various central initiatives and speeches set the tone for anti-involution, the real question is: how do these policies translate into on-the-ground policies for each sector? The real estate sector has primarily focused on reducing current stock and preventing the construction of new properties. The Ministry of Natural Resources issued a formal policy in 2024 to constrain and strictly regulate the supply of land for residential housing.[50] The government also issued 4.4 trillion yuan of bonds to purchase unsold homes.[51] While the state faces a complex set of actors in the sector, their interests are largely aligned following the burst of the property bubbles. Local governments, homeowners, and the majority of surviving businesses all have an interest in avoiding prices from further plunging.[52] That is why local governments have set a floor for pricing through direct supervision to avoid further race-to-the-bottom competition. And whenever price violations occur, local authorities intervene to stop them.[53] The state has also removed purchasing barriers and encouraged house purchasing to stimulate demand. As a consequence of deleveraging, the state is allowing over-leveraged firms to go through bankruptcy and restructuring (such as the recent case of Vanke), while keeping a watchful eye on prices. The fact that SOEs now increasingly dominate the sector also means the state can more easily use them as tools to control prices.

In contrast, the EV sector, as a new energy industry, is still in an expansionary phase, characterized by fierce competition and rising financial debt. While the state repeatedly urged automakers to end price wars amid overcapacity pressures over the last year or so, it lacked a concrete tool to address a market in which private firms, state-owned enterprises, and local governments all played a role. In June 2025, the State Council issued a rule requiring small and medium enterprises to receive payments on time, directly challenging the widespread practice of IOUs in the EV sector. The auto industry association also issued a regulation in 2023 stating that a firm should not use irregular prices to disrupt fair market competition. But over time, these measures were not taken seriously as competition intensified.[54] 

Moreover, there has been an inconsistency in state policy. On the one hand, the government certainly tried to clamp down on business strategies, such as the use of informal IOUs with suppliers and the sale of new EVs as second-hand cars. On the other hand, the central government has been subsidizing EV prices, and beginning in January 2026, it also decided to continue subsidizing them, leaving businesses and consumers confused about state signals and its resolve to stop deflation.[55] And as noted, local governments, which lost a windfall of wealth from land-leasing fees in the property sector, also have a stake in the EV sector. This strategy encouraged some EV producers to continue competing on low prices and prevented them from entering into direct bankruptcy.[56] Further complicating the matter is that while the EV sector includes some SOEs, it is mainly populated by private businesses supported by one or more local governments, which makes direct state regulation difficult.

Some sectors, such as platform deliveries, may be quite different from real estate and EVs, as only several of the dominant platform companies drove involution, and the state can straightforwardly focus on countering such business strategies through direct conversations with executives or by delegating regulation of these platforms. Most sectors, however, such as solar panels, batteries, steel, and cement, face a similar level of complexity in state-business dynamics and anti-innovation outcomes, as do the real estate and EV sectors. This complexity means that recent efforts to control involution differ from combating overcapacity in the past (from 2011 to 2016), when the state instructed infrastructure-related SOEs to consolidate industries and cut supply.[57]

Therefore, if the central government wants to pursue a successful anti-involution campaign, it will have to undertake a more profound change in how the central state manages the local economy. The supply side was shaped by the central government’s setting of growth or export targets as a political task, as well as the local government’s incentive to improve the debt-ridden economy through industrial development, both of which resulted in soft budget constraints for firms to expand their production regardless of market needs. On the demand side, although the central government certainly took measures to stimulate consumption, such as issuing subsidies and vouchers for consumers, it has not fundamentally addressed welfare and social security policies that would prevent excessive household savings. Meanwhile, consumption itself is a hard-to-measure target to pass on to any level of government. This means that local governments have little incentive to pay attention to consumption and to continue boosting industrial development from the supply side, colluding with businesses and taking advantage of subsidies, some of which were provided by the central government.

In other words, the central government faces a tough dilemma if it seeks to set a GDP growth target as a political task while simultaneously cracking down on overinvestment and race-to-the-bottom competition. Local governments are also trapped in a quandary: on the one hand, they need to address the urgent task of rescuing the economy and stimulating industrial growth, and, on the other hand, they have to respond to the central government’s push to discipline business behavior and cut supply. Ultimately, this calls for realigning the interests of the central state, local governments, and businesses.

About the Contributor

Ling Chen is William L. Clayton Associate Professor in the School of Advanced International Studies (SAIS) at Johns Hopkins University. Her research interests lie in political economy and state-business relations in China. Her articles have appeared in journals such as American Journal of Political Science, China Journal, Comparative Politics, International Security, and Perspectives on Politics. Her first book, Manipulating Globalization: The Influence of Bureaucrats on Business in China, published by Stanford University Press, explores the politics of government-business coalitions and policy implementation. Chen was a Wilson China Fellow and a PIP Fellow of the National Committee on U.S.-China Relations.

Notes

[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.

Photo credit: Grevault, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons