For several years, the Chinese economy has grappled with a unique challenge known locally as nêijuân, or “involution.” This term describes a fierce, often self-defeating cycle where competing companies in certain industries engage in relentless price wars. Their goal? To seize market share and offload surplus inventory. Yet, these aggressive pricing strategies frequently backfire, driving retail prices so low that they fail to cover even production costs, plunging businesses into deep financial losses. This destructive trend is currently starkly evident in China’s booming electric vehicle (EV) sector, prompting direct intervention from President Xi Jinping, who recently outlined corrective measures in the theoretical magazine Qiushi. This isn’t an isolated incident; China’s solar industry previously experienced a similar downward spiral.
Unpacking the Origins of “Involution”
The term “involution” traces its roots back to the Latin word involūtiōn-em, which signifies ‘to turn inwards.’ While the Oxford English Dictionary notes its first appearance in English around 1611, it was American anthropologist Clifford Geertz who truly popularized its modern sociological meaning in the 1960s. In his seminal 1969 work, Agricultural Involution: The Processes of Ecological Change in Indonesia, Geertz applied the concept to Java’s wet-rice farming. He observed a system where increasing amounts of labor and complexity were poured into the same agricultural methods, leading to a modest rise in output per acre. However, this didn’t translate into improved productivity or income per person. Essentially, more effort led to stagnant individual prosperity and heightened social intricacy, capturing the essence of a system turning inwards on itself without achieving true progress.
How Global Tariffs Fuel Domestic Price Wars in Chinese EVs
Absolutely, international tariffs have significantly worsened the “involution” phenomenon within China’s EV industry. The United States, for instance, has imposed a steep 100% tariff on Chinese EVs (effective 2024) under Section 301, coupled with increased duties on EV batteries and components. This effectively amounts to a trade embargo, largely shutting Chinese EVs out of the American market.
Similarly, since October 30, 2024, the European Union has implemented “countervailing duties” on Chinese EVs – with rates like 17.0% for BYD, 18.8% for Geely, and approximately 35% for SAIC – in addition to their standard 10% import duty. Ostensibly, these measures aim to counteract alleged Chinese government subsidies to its EV sector. However, this comes at a critical juncture for Europe’s auto industry, which is seeing plummeting sales of its traditional brands as consumers increasingly favor technologically advanced and competitively priced Chinese EVs. These new duties appear to be a desperate bid to protect Europe’s struggling, once export-dominant automotive sector, with the commission even considering minimum price agreements for 2025.
Further compounding the issue, Turkiye introduced an additional 40% tariff on Chinese vehicles in 2024, and Mexico is moving towards a 50% tariff to prevent transshipment destined for the U.S.
The collective impact of these global trade barriers has been a dramatic escalation of domestic competition among Chinese Original Equipment Manufacturers (OEMs), igniting even fiercer price wars within China. Industry leaders openly describe this internal struggle as “involution,” and Beijing has launched an aggressive campaign to curb these price battles amidst warnings from top executives about inevitable, severe consolidation among the 120-130 EV manufacturers in the country.
While some Chinese OEMs are establishing production facilities abroad (like BYD in Hungary and Turkiye) and diversifying exports to emerging markets, these expansions face unpredictable timelines and capacity ramp-ups. In the meantime, the International Energy Agency reports that Chinese imports were responsible for 75% of the growth in EV sales across emerging economies outside of China in 2024, underscoring the vital role of these alternative markets.
China’s Government Takes Action to Stabilize the EV Market
The Chinese government is actively implementing measures to curb the destructive “involution” trend in its EV sector. On May 31, the Ministry of Industry and Information Technology (MIIT) pledged to bring the phenomenon under control. This commitment was quickly reinforced by Chinese media on June 30, which highlighted a Politburo communication as President Xi Jinping’s declaration of a “war on price wars.”
Further demonstrating its resolve, Beijing unveiled a draft overhaul of its pricing law on July 24, specifically targeting below-cost selling and the misuse of algorithmic pricing strategies. The clearest indication of the central government’s plan for a phased de-escalation of price wars came with President Xi’s recent article in Qiushi, the Chinese Communist Party’s official theoretical magazine. In it, he explicitly called for restraining “disorderly price competition” and facilitating an “orderly exit” for outdated manufacturing capacity, signaling a strategic shift toward a more stable and sustainable market.