Excessive competition within China: Why leaders are worried about 'Neijuan'

Decoded: What is 'Neijuan' and how is China planning to crackdown on excessive, self-defeating competition within the country

Chinese Premier Li Qiang, during his address of the annual work report to the National People’s Congress (NPC) on Wednesday, vowed to launch a “comprehensive crackdown” on ‘Neijuan’ – a term referring to excessive, self-defeating competition.  This marks a significant moment in China, as the concept has now been officially acknowledged by a top official at one of China’s most important political events of the country.

 

As China’s economy slows, the government is pushing to create a more sustainable business environment while also countering international criticism over its industrial policies. Here is a closer examination of the industrial competition in China and how ‘Neijuan’ comes into play.

 

 

What is Neijuan?

The term ‘Neijuan’ best translates to ‘involution’ and can be better understood as ‘involutionary competition’. It describes a cycle of diminishing returns caused by intense competition. In simple terms, it means companies and individuals are forced to work harder and invest more, without seeing proportional benefits or returns.

 

In business, this means companies slashing prices and overproducing to stay ahead, even if it hurts profitability.

 

For workers, it describes a relentless rat race where individuals must continuously upskill, work long hours, and compete fiercely – without necessarily improving their quality of life.

 

Chinese crack down on Neijuan

Neijuan has been particularly visible in China’s booming industries, where companies are undercutting each other in price wars, leading to lower profits and unsustainable business practices. The electric vehicle (EV) sector is a prime example, with fierce competition among brands driving aggressive price cuts.

 

Response of Chinese govt

This is not the first time China’s leaders have spoken about ‘Neijuan’, but it is the first time it has been included in an official government work report. Over the past year, Beijing has intensified efforts to curb excessive competition and encourage more sustainable economic growth. 

Policy reforms: China aims to eliminate market fragmentation and local protectionism, making it easier for businesses to compete fairly. 

Stricter regulations: The government has pledged to crack down on destructive competition, ensuring industries focus on innovation rather than just price wars. 

Meetings with key industries: China’s market regulator recently called in top companies from the technology, solar, and automotive sectors to discuss solutions for controlling ‘Neijuan’.

 

Promoting ‘new quality productive forces’: Beijing is shifting focus to high-tech sectors such as solar energy, electric vehicles, and batteries, but overproduction remains a challenge.

 

“China will accelerate the establishment and improvement of fundamental institutional rules, eliminate local protectionism and market fragmentation, and remove bottlenecks in market entry and exit as well as resource allocation,” Li stated during his address.

 

Global competition ups pressure on Chinese firms

The crackdown on ‘Neijuan’ also comes amid rising tensions with the US and the European Union (EU). Western nations have accused China of ‘dumping’ excess capacity into global markets, selling products at extremely low prices, which they claim is hurting their domestic industries.

 

China, however, rejects these accusations, arguing that its industrial expansion is driven by innovation and genuine demand, not unfair trade practices. However, Beijing’s increasing focus on regulating its industries suggests that even Chinese leaders are recognising the risks of unchecked competition.