QiuShi is the official political theory magazine of the CCP, and they are now openly discussing 内卷, which has many names in English - involution, overproduction, overcompetition, race to the bottom, diminishing marginal benefits, etc. Most people outside of China know the symptoms of it as 996, aka China's recent phenomena of overwork. But really it's just personal and corporate competition taken to the extreme, spreading from the economy to high school students taking gaokao.
It's pretty radical that the government is openly acknowledging this, but also that they are signaling that this is a problem to solve.
>which has many names in English - involution, overproduction, overcompetition, race to the bottom, diminishing marginal benefits
English/western reporting/propaganda conflates "involution" with those other terms, well specifically geopolitical narratives like overproduction aka PRC is producing too much, relying too much on external demand. AKA PRC should export less and consume more, where export less = western incumbents can hold on to more market share. Of course this is ridiculous and not what PRC wants. QS / PRC does not care about "overproduction" i.e. they will always want MORE PRC exports to capture more market share at the expense of western competitors.
What QS and general recent discussiong around "involution" specifically is domestic economic-industrial, i.e. competitive environment where well resourced players, especially those supported / aligned with local govs (that compete with other players supported by other local govs), who compete with each other using tactics that is affecting upstream / downstream industries and absolutely murdering profits which undermining the economic chain. Jurisdictional protectionism is causing dysfunctional mode of internal competition that’s leading in aggregate to wasteful, self cannibalizing behaviour that hurts domestic sectors built up to out compete foreign players (with profit).
Regardless, this is how IT SHOULD work under typical PRC overcapacity strategy, develop lots of players, they compete and kill each other, winners consolidate / eat losers, group of winners return to profitability with extremely developed industrial chain. Keep in mind the timeline of big pivot to high tech manufacturing post 3RL/real estate crackdown especially in auto, i.e. it's only been ~5 years or so. CCP/QuiShi is annoyed some local govs are keeping the taps flowing to losers and prolonging bleed to prospective winners who need to slit throats elsewhere - inefficient players aren't exiting fast enough because there's still sources of life support. CCP telling local govs to prepare because central gov coming to pull plugs.
I've seen the complaints about juan eating into domestic demand, esp among existing domestic firms. There's definitely the "wasteful effort" aspect of this but that would be solved by any normal market conditions. The thing that I'm interested in is the cultural aspect though - because how do you stamp out extreme competition while the take home profits and margins keep falling?
This was a trend that started before trade war, and was definitely exacerbated by it. But it feels like (to my outsider uneducated view) that there will need to be some central regulation of this, beyond just hoping for a correction to rebalance the economy.
Eating into domestic profit, if anything domestic demand would be up due to price wars, and we see in data domestic demand for price war sectors are crazy or higher than per capita consumption would demand, i.e. all the renewables. Auto domestic consumption is ~20 per 1000 people, about double Mexicos who according to GDP and other measures should consume comparable/more than PRC.
>how do you stamp out extreme competition
Look at much memed PRC bike sharing bubble which lasted ~5 years... graveyards of bikes from losers. IIRC ~8B spent, overcapacity -> consolidation cycle. Bubble burst mid 2010s. I think 1-1.5B / year industry, probably a few 100m profit / year for entire sector for 7B and growing rides per year. Lazy chatgpt numbers and PRC doing 5 rides per capita, western countries averaging 1. So it's... a very high utility sector... with marginal profits... i.e. affordable. which is what theoretically one wants, economic profits trend to zero over time under perfect competition.
Zero does not mean negative, and zero does not mean so little sector becomes globally uncompetitive. Ideally PRC industrial policy is to generate very competitive companies who are not wildly profitable after pouring resources into stuff like infra/r&d to keep competitive edge (i.e. fuck share buy backs). IMO why mantra/focus is "high-quality development" not "high-profit development". Low margins/profits is the goal of abundance, especially if big share of domestic market is 600m that's still low income, or the 50% of the world that is developing.
> just hoping for a correction to rebalance the economy
I think that's why QS is reporting. Bike sharing had market correction... because market correction typically inevitable. Cars on other hand is particularly strategic industry with very motivated backers, it's one of those market can stay irrational longer than you can stay solvent sectors because everyone (province/countries) wants auto industry. So this is one of those cases central gov will probably have to step in to correct, hence QS warning telling players central gov will do something if they don't.
One example I heard of is Innotron/ChangXin producing DRAM chips, majorly backed by Anhui local government $2.4B investment. Fujian Jinhua and YMTC were other projects funded by Fujian and Wuhan local government as their horses in the race, but it seems there's one winner now, especially because of the sanction mess up of Fujian Jinhua. Housing and bike share bubbles also seem like successful examples but I don't know the details of how exactly government stepped in.
Feels like this could become CCP's method of doing quantitative easing, depending on how much of an appetite there is to be picking 'winners'. Prevent full blown panic, but keep investor capital flowing. But what happens after there is only one BYD left, one Huawei, one SMIC, one DJI, etc.? Just keep finding new industries to juice? Do all of these companies have the same destiny of offshoring production to Vietnam or some place else? And what happens with all the existing debt, who's expected to pick up that tab?
Bike bubble really just market forces at work, FOMO opportunity, money poured in, bubble burst, winners decided, life goes on until business case to disrupt.
TLDR timeline of speculative RE: Regulators caught on since early 2010s, they were just soft/iterate through gradual solutions because hard messing with wealth and local gov land finance. 2010s policies led to domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Developers + local gov game RE land finance game via shadowbanking + presales to keep the taps going, queue ~2017 crack down on shadow banking (with some backtracking). Then hard 3RL in 2020. Also important to note 3RL happened AFTER 12TH & 13th 5YR PLAN that build out PRC renewable manufacturing. Reason why 3RL - hammer hard tier policy - was feasible was it became possible to shift construction to renewable rollout to keep building industrial chain jobs and gdp. Other consideration is how culturally signifiant RE is to PRC wealth culture... IMO had to slowball process over 10+ years for cultural shift - getting people to understand RE doesn't go brrrt forever and houses are for "living in" not speculation.
On DRAM and other strategic industries, I think goal is managed oligopoly, to have amount of competitors where sector + industrial chain remains healthy, i.e. not involution dynamic. IMO involution exist because investors knows this is the end state of PRC industrial policy... hence everyone going HAM on being few of last man / champion standing because that's how you not lose shirt and get license to print money.
As for the debt, what happens in US during tech bubbles, people lose their shirts. Local gov and central gov do debt math to move it off books for strategic sectors with long term ROI / existential need. I don't think any strategic sector is getting offshored, i.e. look at rare earth, it makes peanuts but PRC doing everything to hold on. High tech strategic industries that hire millions of tertiary with well paying jobs PRC will do everything they can to keep just like US. PRC scale and complete industrial chain also puts it in position to be durably dominant as encumbants. PRC long term competitive advantage (for at least decades) is having such a large and integrated domestic chain that smaller countries, i.e. even those with 100s of millions simply don't have population to replicate and exploit comparable economies of scale.
If I had to guess, it's many factors all combining. The main one has to be the economic one, which is that intense over-competition between companies is now affecting domestic production - the race to the bottom is no longer producing the profits it used to when it was competing for overseas customers, and is now undercutting domestic production.
Another is definitely declining birth rates, though this is happening worldwide, but a lot of people seem to think juan is also a factor. It's not necessarily that the amount of money needed to start a family and have kids is too high, but just that young people are delaying it more and more. Plus the recent economic downturn and too many educated young unemployed people.
This whole thing started off as an internet meme in 2018 with a video of Tsinghua university students riding home on bicycles, and there's one kid with a laptop open studying while riding a bike. Then in classic internet fashion, it escalated with other photos of someone eating noodles while studying while riding a bike, and it continues. The concept is now a part of daily life for a lot of people. Though, this was studied and acknowledged in past theoretical work, notably Indonesia's agricultural development where it was studied. But these days it feels like a catch-all sort of easy to blame reason for daily life getting harder.
CCP has a backlog of tasks, ordered by priority, every year, this list is evaluated, every 5 years, the priority is adjusted. This topic would have been discussed for sometimes in the past until it surfaces for a broader discussion, followed by think tanks, policy making.
QiuShi is the official political theory magazine of the CCP, and they are now openly discussing 内卷, which has many names in English - involution, overproduction, overcompetition, race to the bottom, diminishing marginal benefits, etc. Most people outside of China know the symptoms of it as 996, aka China's recent phenomena of overwork. But really it's just personal and corporate competition taken to the extreme, spreading from the economy to high school students taking gaokao.
It's pretty radical that the government is openly acknowledging this, but also that they are signaling that this is a problem to solve.
>which has many names in English - involution, overproduction, overcompetition, race to the bottom, diminishing marginal benefits
English/western reporting/propaganda conflates "involution" with those other terms, well specifically geopolitical narratives like overproduction aka PRC is producing too much, relying too much on external demand. AKA PRC should export less and consume more, where export less = western incumbents can hold on to more market share. Of course this is ridiculous and not what PRC wants. QS / PRC does not care about "overproduction" i.e. they will always want MORE PRC exports to capture more market share at the expense of western competitors.
What QS and general recent discussiong around "involution" specifically is domestic economic-industrial, i.e. competitive environment where well resourced players, especially those supported / aligned with local govs (that compete with other players supported by other local govs), who compete with each other using tactics that is affecting upstream / downstream industries and absolutely murdering profits which undermining the economic chain. Jurisdictional protectionism is causing dysfunctional mode of internal competition that’s leading in aggregate to wasteful, self cannibalizing behaviour that hurts domestic sectors built up to out compete foreign players (with profit).
Regardless, this is how IT SHOULD work under typical PRC overcapacity strategy, develop lots of players, they compete and kill each other, winners consolidate / eat losers, group of winners return to profitability with extremely developed industrial chain. Keep in mind the timeline of big pivot to high tech manufacturing post 3RL/real estate crackdown especially in auto, i.e. it's only been ~5 years or so. CCP/QuiShi is annoyed some local govs are keeping the taps flowing to losers and prolonging bleed to prospective winners who need to slit throats elsewhere - inefficient players aren't exiting fast enough because there's still sources of life support. CCP telling local govs to prepare because central gov coming to pull plugs.
Overwork/edtech involution is a separate subject.
I've seen the complaints about juan eating into domestic demand, esp among existing domestic firms. There's definitely the "wasteful effort" aspect of this but that would be solved by any normal market conditions. The thing that I'm interested in is the cultural aspect though - because how do you stamp out extreme competition while the take home profits and margins keep falling?
This was a trend that started before trade war, and was definitely exacerbated by it. But it feels like (to my outsider uneducated view) that there will need to be some central regulation of this, beyond just hoping for a correction to rebalance the economy.
>eating into domestic demand
Eating into domestic profit, if anything domestic demand would be up due to price wars, and we see in data domestic demand for price war sectors are crazy or higher than per capita consumption would demand, i.e. all the renewables. Auto domestic consumption is ~20 per 1000 people, about double Mexicos who according to GDP and other measures should consume comparable/more than PRC.
>how do you stamp out extreme competition
Look at much memed PRC bike sharing bubble which lasted ~5 years... graveyards of bikes from losers. IIRC ~8B spent, overcapacity -> consolidation cycle. Bubble burst mid 2010s. I think 1-1.5B / year industry, probably a few 100m profit / year for entire sector for 7B and growing rides per year. Lazy chatgpt numbers and PRC doing 5 rides per capita, western countries averaging 1. So it's... a very high utility sector... with marginal profits... i.e. affordable. which is what theoretically one wants, economic profits trend to zero over time under perfect competition.
Zero does not mean negative, and zero does not mean so little sector becomes globally uncompetitive. Ideally PRC industrial policy is to generate very competitive companies who are not wildly profitable after pouring resources into stuff like infra/r&d to keep competitive edge (i.e. fuck share buy backs). IMO why mantra/focus is "high-quality development" not "high-profit development". Low margins/profits is the goal of abundance, especially if big share of domestic market is 600m that's still low income, or the 50% of the world that is developing.
> just hoping for a correction to rebalance the economy
I think that's why QS is reporting. Bike sharing had market correction... because market correction typically inevitable. Cars on other hand is particularly strategic industry with very motivated backers, it's one of those market can stay irrational longer than you can stay solvent sectors because everyone (province/countries) wants auto industry. So this is one of those cases central gov will probably have to step in to correct, hence QS warning telling players central gov will do something if they don't.
One example I heard of is Innotron/ChangXin producing DRAM chips, majorly backed by Anhui local government $2.4B investment. Fujian Jinhua and YMTC were other projects funded by Fujian and Wuhan local government as their horses in the race, but it seems there's one winner now, especially because of the sanction mess up of Fujian Jinhua. Housing and bike share bubbles also seem like successful examples but I don't know the details of how exactly government stepped in.
Feels like this could become CCP's method of doing quantitative easing, depending on how much of an appetite there is to be picking 'winners'. Prevent full blown panic, but keep investor capital flowing. But what happens after there is only one BYD left, one Huawei, one SMIC, one DJI, etc.? Just keep finding new industries to juice? Do all of these companies have the same destiny of offshoring production to Vietnam or some place else? And what happens with all the existing debt, who's expected to pick up that tab?
Bike bubble really just market forces at work, FOMO opportunity, money poured in, bubble burst, winners decided, life goes on until business case to disrupt.
TLDR timeline of speculative RE: Regulators caught on since early 2010s, they were just soft/iterate through gradual solutions because hard messing with wealth and local gov land finance. 2010s policies led to domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Developers + local gov game RE land finance game via shadowbanking + presales to keep the taps going, queue ~2017 crack down on shadow banking (with some backtracking). Then hard 3RL in 2020. Also important to note 3RL happened AFTER 12TH & 13th 5YR PLAN that build out PRC renewable manufacturing. Reason why 3RL - hammer hard tier policy - was feasible was it became possible to shift construction to renewable rollout to keep building industrial chain jobs and gdp. Other consideration is how culturally signifiant RE is to PRC wealth culture... IMO had to slowball process over 10+ years for cultural shift - getting people to understand RE doesn't go brrrt forever and houses are for "living in" not speculation.
On DRAM and other strategic industries, I think goal is managed oligopoly, to have amount of competitors where sector + industrial chain remains healthy, i.e. not involution dynamic. IMO involution exist because investors knows this is the end state of PRC industrial policy... hence everyone going HAM on being few of last man / champion standing because that's how you not lose shirt and get license to print money.
As for the debt, what happens in US during tech bubbles, people lose their shirts. Local gov and central gov do debt math to move it off books for strategic sectors with long term ROI / existential need. I don't think any strategic sector is getting offshored, i.e. look at rare earth, it makes peanuts but PRC doing everything to hold on. High tech strategic industries that hire millions of tertiary with well paying jobs PRC will do everything they can to keep just like US. PRC scale and complete industrial chain also puts it in position to be durably dominant as encumbants. PRC long term competitive advantage (for at least decades) is having such a large and integrated domestic chain that smaller countries, i.e. even those with 100s of millions simply don't have population to replicate and exploit comparable economies of scale.
Wiki link for anyone else who was curious what exactly this word/phenomena is:
https://en.wikipedia.org/wiki/Neijuan
What has caused the CCP to focus on this suddenly? Declining fertility rates (~1 TFR)? Or something else?
If I had to guess, it's many factors all combining. The main one has to be the economic one, which is that intense over-competition between companies is now affecting domestic production - the race to the bottom is no longer producing the profits it used to when it was competing for overseas customers, and is now undercutting domestic production.
Another is definitely declining birth rates, though this is happening worldwide, but a lot of people seem to think juan is also a factor. It's not necessarily that the amount of money needed to start a family and have kids is too high, but just that young people are delaying it more and more. Plus the recent economic downturn and too many educated young unemployed people.
This whole thing started off as an internet meme in 2018 with a video of Tsinghua university students riding home on bicycles, and there's one kid with a laptop open studying while riding a bike. Then in classic internet fashion, it escalated with other photos of someone eating noodles while studying while riding a bike, and it continues. The concept is now a part of daily life for a lot of people. Though, this was studied and acknowledged in past theoretical work, notably Indonesia's agricultural development where it was studied. But these days it feels like a catch-all sort of easy to blame reason for daily life getting harder.
https://ichef.bbci.co.uk/ace/ws/635/cpsprodpb/1628E/producti...
CCP has a backlog of tasks, ordered by priority, every year, this list is evaluated, every 5 years, the priority is adjusted. This topic would have been discussed for sometimes in the past until it surfaces for a broader discussion, followed by think tanks, policy making.