China’s Macroeconomic Involution: Is this an Opportunity for Foreign Firms?
Type
book section
Date Issued
2025
Author(s)
Editor(s)
Abstract
This article analyzes China’s emerging condition of macroeconomic involution (内卷), characterized by intensifying competition that erodes profitability, fuels deflationary pressures, and ultimately undermines innovation and productivity growth. Drawing on recent empirical evidence and the inverted-U relationship between competition and innovation, the analysis argues that China has moved beyond growth-enhancing competition into a phase of excessive rivalry marked by price wars, excess capacity, and falling margins. Sectoral evidence, particularly from the electric vehicle industry, illustrates how rapid output expansion has coincided with declining profits and capacity utilization. The article identifies several structural drivers of involution, including persistently low household consumption, subsidies, and sustained expansion of the monetary base. While involution poses significant challenges for policymakers and domestic firms, the analysis highlights potential opportunities for foreign companies, particularly through market consolidation, mergers and acquisitions, and access to cost-effective R&D capabilities. The article concludes that involution represents both a macroeconomic risk and a strategic inflection point for foreign engagement in China.
Publisher
Seismo Verlag AG
File(s)![Thumbnail Image]()
open.access
Name
China’s Macroeconomic Involution.pdf
Size
287.67 KB
Format
Adobe PDF
Checksum (MD5)
7e8d7b1c4d6dc8f740e0a92120754014