China's uphill fight vs price wars

Overcapacity has made its way into China’s domestic market, with price wars leading to collapsing profitability and accelerating deflation. The government has responded by launching a so-called “anti-involution” programme to combat deflationary price wars. It's had some early wins, but this could be a lengthy battle.

- Manishi Raychaudhuri

The Chinese internet slang for “involution” originally referred to competitive pressures faced by young Chinese in education and the workplace. Since early 2024, however, the word has come to describe supposedly excessive, unsustainable competition among Chinese firms, where more resources are being invested without increasing higher returns. The Chinese government began to highlight the economic dangers of “involution” as early as June 2024 in the face of declining corporate margins and profitability across diverse sectors such as electric vehicles, solar panels, lithium batteries, steel, cement and food delivery.

Critiques of “excessive” competition grew much louder in the first half of 2025 as several price wars escalated. In particular, EV leader BYD started sharply cutting prices, and food delivery giant Meituan and new e-commerce platform JD.com began offering discounts and subsidies. Increased competition in China also appears to be amplifying deflationary pressures.

While China’s Producer Price Index (PPI) has been in negative territory for much of the last three years, hopes of escaping this morass were ignited in mid-2024 as domestic demand appeared to be recovering. However, that optimism was doused this year as price wars intensified, with PPI falling by 3.6% year-on-year in the most recent report.

China's government launched a multi-pronged anti-involution campaign in July.