Involution to evolution? China urged to spur new demand, innovation-led growth

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.