China urged to curb ‘neijuan’ by boosting domestic consumption, innovation-led growth

To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions

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Liu Lijie, a food delivery rider from Ele.me eats his meal at Yushiji restaurant in Beijing on March 18, 2025. Photo: AP

Published: 7:30pm, 21 Jul 2025Updated: 7:59pm, 21 Jul 2025

Stimulating consumer demand and encouraging sustainable innovation are vital to China’s efforts to combat excessive competition – termed neijuan in Chinese, or “involution” - and could even help turn the trend into a virtuous cycle, analysts said.

Top-down macroeconomic policies are also crucial, as actions taken by enterprises alone are insufficient, they added.

“The essence of ‘involutional’ competition is inefficient competition in a limited market space,” analysts from China International Capital Corporation (CICC) said in a research note.

“Therefore, boosting demand to create an ‘incremental cake’ by expanding the scale of market demand can provide a favourable macro environment to combat involution.”

The term neijuan, or “involution”, refers to a self-defeating cycle of excessive competition in which companies are forced to invest increasing resources without benefiting from proportional returns.

To tackle the roots of the problem, companies must increase research and development and offer differentiated products – fostering a positive, demand-driven cycle, the CICC analysts said in the July 17 note.

China’s top leaders have raised the alarm in recent weeks. In a meeting chaired by President Xi Jinping on July 1, the Central Finance and Economic Affairs Commission said Beijing needed to “guide enterprises to improve product quality and promote the orderly exit of outdated production capacity”.

This signalled a willingness by the central government to steer industries towards innovation-led growth and incremental profits, analysts said.

Only when the capital market is revitalised can the entire economic environment be fundamentally freed from involution

Zhao Yanjing, an economics professor at Xiamen University

China urged to curb ‘neijuan’ by boosting domestic consumption, innovation-led growth

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions

To turn excessive competition into a positive, analysts say Beijing needs to focus on demand-side solutions