On August 1, China’s state planner announced a crackdown on “herd behaviour” in emerging industries, targeting the surge of capital into hot sectors such as electric vehicles (EVs), batteries and solar. Officials warned against “blind imitation” where firms large and small pile into the same space, sparking price wars and overcapacity.
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This frenzy, often dubbed neijuan or “involution” in China, has become a major liability. The new rules aim to prevent chaotic boom-bust cycles and enforce investment discipline, even as innovation is still encouraged.
This is a necessary shift as industries, including EVs and solar, are drowning in excess capacity and collapsing margins. Beijing is now steering away from brute-force growth towards high-quality development, where standards and sustainability matter more than speed.
Rather than a retreat inward, this is a strategic reset that will reshape how Chinese capital moves globally, especially in Southeast Asia. By cooling speculative excess at home, China is preparing its firms to expand abroad more selectively and sustainably. Nowhere will this be felt more than in Southeast Asia, where Chinese money has surged in recent years. The “herd behaviour” curbs are likely to slow erratic capital flows into the region and promote longer-term industrial partnerships instead.
For starters, the crackdown marks a shift from chaotic growth to sustainable innovation. In recent years, Chinese firms have slashed prices to win market share, sacrificing quality and profits. Officials now warn that such extreme competition is self-destructive. President Xi Jinping has called for breaking the cycle of “involution” and elevating standards.
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The message is clear: competition must have limits, and innovation must be orderly. China is raising the bar for new industries rather than closing the door. By curbing overcapacity and enforcing rules, Beijing is trying to cultivate an ecosystem that prizes durability over hype.