China’s Crackdown on Neijuan

Recently, Chinese Premier Li Qiang addressed the National People’s Congress, denoting the government’s commitment to combating ‘Neijuan’. This term, meaning involutionary competition, describes a cycle of diminishing returns caused by excessive competition. As China’s economy slows, the government seeks to create a sustainable business environment while addressing international criticism.

About Neijuan

Neijuan refers to intense competition that leads to reduced returns. It forces companies and individuals to exert more effort without proportional benefits. In the business context, firms engage in price wars and overproduction to maintain market share, harming profitability. For workers, it translates to longer hours and constant upskilling without a better quality of life.

Impact on Industries

Neijuan is evident in China’s thriving sectors, particularly in electric vehicles (EVs). Companies slash prices to outdo each other, resulting in unsustainable practices. This aggressive competition leads to lower profits and market instability.

Government Response

The Chinese government has intensified its approach to curb Neijuan. This marks a shift in policy focus towards sustainable growth. Officials aim to eliminate market fragmentation and local protectionism. They are promoting fair competition and innovation over destructive price wars.

Policy Reforms

China is implementing several policy reforms to address Neijuan. These include stricter regulations on competition and meetings with key industry players to discuss solutions. The focus is on encouraging innovation and reducing the emphasis on price competition.

Global Competition and Tensions

China’s crackdown on Neijuan occurs amid rising global tensions, particularly with the US and the EU. Western nations accuse China of dumping excess capacity into their markets, undermining local industries. China refutes these claims, asserting that its industrial growth is driven by innovation and demand.

Future Implications

The recognition of Neijuan by Chinese leaders indicates an awareness of the risks associated with unchecked competition. By addressing these challenges, China aims to encourage a more sustainable economic environment that benefits both businesses and workers.

Month: Current Affairs - March, 2025

Category: Economy & Banking Current Affairs