Published on: October 24, 2025 / Updated on: October 24, 2025 – Author: Konrad Wolfenstein
China’s “disorderly competition” – The fight against self-destructive economic dynamics (Politburo meeting on July 30, 2025) – Image: Xpert.Digital
Xi Jinping's new mission: China's fight against disorderly competition – and what that means for the world
China's secret economic crisis: What "Neijuan" really means and why Beijing is acting now
China's economy, long synonymous with unstoppable growth, faces a profound challenge known internally as "Neijuan" (内卷, "Involution"). Originally describing stagnation in over-farmed agriculture, this term has become a viral buzzword in recent years, outlining a self-destructive spiral of excessive competition and diminishing marginal returns. It is a phenomenon where ever-increasing resources are expended without achieving proportional progress or genuine growth—a condition that exacerbates feelings of overwork, stress, and hopelessness in Chinese society.
What began as a societal observation has now expanded into a central problem of economic policy. The situation is particularly critical in the so-called "New Three" (新三样) – solar panels, electric vehicles, and lithium batteries. These sectors, once hailed as China's future growth drivers, have fallen victim to massive overcapacity and ruinous price wars. Manufacturers are systematically selling below cost, thereby destabilizing entire value chains and jeopardizing the very existence of the companies. The figures speak for themselves: solar production capacity far exceeding global demand, price wars in the electric vehicle market reminiscent of the collapsed real estate sector, and battery capacities that could meet global demand until 2035 – all these are symptoms of Neijuan.
The Chinese leadership under President Xi Jinping recognized the urgency and officially declared war on Neijuan at the Politburo meeting on July 30, 2025. Combating “disorderly competition” became one of the three main priorities for the second half of 2025. This marks a turning point, with Beijing departing from its previous support policies and initiating a “Supply-Side Reform 2.0” through administrative interventions, industry-level self-regulation, and fiscal measures. However, the structural causes—a principal-agent dilemma between central and local governments that fuel subsidy races, and a decentralized system in which unprofitable companies expand through state aid—remain deeply entrenched. China’s path out of this self-destructive dynamic will be long and complex, with far-reaching consequences for the global economy.
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Neijuan – China's fight against self-destructive economic dynamics
Since 2020, Neijuan (内卷, “involution”) has become a central concept in China’s economic policy. At the Politburo meeting on July 30, 2025, the Chinese leadership under President Xi Jinping officially declared war on the phenomenon and made combating “disordered competition” one of the three main priorities for the second half of 2025.
What does Neijuan mean?
Neijuan describes a destructive cycle of excessive competition in which companies expend ever more resources without this leading to proportional progress or growth. The term originally comes from anthropology: Sociologist Clifford Geertz used “involution” in 1963 to describe agricultural stagnation in Indonesia, where productivity did not increase despite rising labor input.
In China, the term was translated into Chinese around 2000 by the historian Huang Zongzhi and acquired an additional dimension: diminishing marginal returns with increasing labor input. Since 2020, Neijuan has gone viral and become one of the top ten Chinese buzzwords of the year. The concept now describes a society caught in a self-destructive race without genuine progress—a life characterized by overwork, stress, anxiety, and a feeling of being trapped.
Neijuan in the economy: From society to industry
What initially began as a description of societal conditions – particularly in the education system and labor market – increasingly shifted from 2024/2025 onwards to encompass economic structural problems. In industry, Neijuan manifests as ruinous price wars, in which manufacturers systematically sell below cost, thereby not only jeopardizing their own existence but also destabilizing entire value chains.
The so-called “New Three” (新三样, xin san yang) – solar panels, electric vehicles, and lithium batteries – are particularly affected. These sectors were originally identified as growth drivers and strategic future industries, but are now suffering from massive overcapacity
solar industry
China's production capacity reached approximately 1,000 GW in 2023 and is projected to rise to 1,700 GW by 2026 – compared to global demand of just 445 GW in 2023. The four largest Chinese module manufacturers (Longi, Jinko Solar, Trina Solar, and JA Solar) reported combined net losses of 11 billion yuan (US$1.54 billion) in the first half of 2025 alone, a 150 percent increase year-on-year. In September 2025, production cuts led to a dramatic 48 percent price increase for polysilicon, following prices that had previously fallen to historic lows of US$0.07–0.09 per watt.
Electric vehicles
The Chinese electric car market is experiencing a brutal price war. In May 2025, market leader BYD slashed prices on 22 models by up to 30 percent – the Seagull mini hatchback cost the equivalent of just US$7,800. This triggered warnings that the industry could suffer a similar fate to the collapsed housing sector. In September 2025, BYD reported its first sales decline in China in 18 months – a drop of 5.5 percent. BYD's net profit fell by 29.9 percent in the second quarter of 2025.
Batteries
China's production capacity for lithium-ion batteries exceeded 2 TWh in 2024 – 60 percent higher than actual demand. Planned capacities exceed 6 TWh, enough to meet global demand until 2035.
The structural causes: A systemic problem
The roots of Neijuan lie in China's decades-old growth model, but became particularly evident after the bursting of the real estate bubble in 2021-22. As investment in the real estate sector collapsed, Beijing had to find an alternative investment engine to sustain GDP growth. Instead of relying solely on infrastructure, the government channeled massive investment flows into the manufacturing sector – particularly into the strategic "New Three" sectors.
A key structural problem is the principal-agent dilemma between the central government and local authorities. Provincial and municipal administrations are evaluated based on local economic performance, jobs, and tax revenue. This has led to a subsidy race between regions, in which local governments have invested in production capacity regardless of overall economic rationality.
Chinese industrial policy differs fundamentally from Western approaches: First, local governments at the provincial, city, and county levels have considerable powers and resources to support local companies—often in explicit competition with other Chinese regions. Second, entire value chains are subsidized, not just individual segments. This leads to a decentralized system in which numerous locally supported companies operate unprofitably at the national level but expand through subsidized costs, thereby driving down prices.
More than 99 percent of listed Chinese companies received government subsidies in 2022. However, studies show that subsidies drove only 1 percent of capital investment between 2019 and 2023 (compared to 6 percent between 2014 and 2018), while over 80 percent was driven by revenue growth. The dependence is significantly higher for the “New Three” companies, however: 22 percent of their new investments between 2019 and 2023 were made possible by subsidies.
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Beijing's countermeasures: The “anti-involution” strategy
At the Politburo meeting on July 30, 2025, the Chinese leadership made combating Neijuan a core priority. This marked a significant turning point: for the first time, the term was used in a high-level political document, after Premier Li Qiang had already mentioned it in his annual work report to the National People's Congress in March 2025.
In August 2025, the National Development and Reform Commission (NDRC) announced plans to combat “herd behavior” in investments in emerging sectors and to curb “disorderly competition” and “overcapacity.” The measures include:
Administrative interventions:
- Stricter price controls and planned bans on selling below cost
- Restrictions for new production facilities
- Shutdown of inefficient businesses
- Curbing the subsidy race between provinces
- One third of the existing silicon production capacity is to be reduced
Industry self-regulation
In December 2024, 33 leading Chinese polysilicon and solar companies agreed to production cuts modeled on OPEC agreements, with quotas based on market share and capacity. The China Photovoltaic Industry Association is advocating minimum prices of 0.68 yuan per watt for modules. Leading manufacturers are currently operating at only 55-70 percent capacity.
Fiscal measures
Starting in the fourth quarter of 2025, China will eliminate the 13 percent VAT refund on exports of solar panels and energy storage systems. This will increase global prices by approximately 9 percent.
Perspective: Supply-Side Reform 2.0
The current strategy is referred to as “Supply-Side 2.0” and differs from previous approaches. While the supply-side reforms of 2015 relied on administrative closures and the consolidation of state-owned enterprises in heavy industries such as steel and coal, the new approach pursues more market-oriented mechanisms: network access rules, energy efficiency standards, financial discipline, and selective enforcement.
The fundamental challenge remains, however: as long as political imperatives compel local governments and state-owned enterprises to expand production—even if this means limiting household income relative to output—there will be more supply than demand. Beijing can shift this imbalance between sectors (from real estate to manufacturing, from low-tech to high-tech), but cannot eliminate it without fundamental adjustments to the economic structure.
The Fourth Plenary Session of the 20th Central Committee in October 2025 will establish the guidelines for the 15th Five-Year Plan (2026-2030). Whether Xi Jinping fundamentally rethinks his economic policy or continues with the current approach will be revealed in these documents. The Chinese solar industry has cut 87,000 jobs, and further layoffs are expected—a sign that the fight against Neijuan is only just beginning.
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