China’s Communist Party has issued its most forceful warning yet against the destructive price wars and industrial overcapacity plaguing the nation’s economy. In a strongly worded article, the prominent party journal Qiushi called for a crackdown on the “involutionary competition” that it says is squeezing profits and threatening long-term growth.
The article identifies a core problem: firms and local governments are investing vast sums of capital in industries such as electric vehicles, solar panels, and e-commerce to chase market share, even as demand remains limited. This race to the bottom forces companies to cut costs, compromise on product quality, and delay payments to suppliers, stifling innovation and harming the entire industrial chain.
Unusually, the publication directly criticizes local officials for fueling the crisis. It accuses them of creating “policy havens” with artificial subsidies and tax breaks to attract investment at any cost, while failing to enforce regulations or manage bankruptcies effectively. This, the article argues, creates enormous waste and unsustainable debt.
While not mentioning deflation directly, the warning echoes economists’ concerns that China’s state-guided investment model is creating risks similar to those experienced by Japan during its ‘lost decades’.
The solution, Qiushi states, is to reform the supply side and expand domestic demand. However, it soberly concludes that addressing this deep-rooted problem will be a complex, long-term project, rather than a quick fix.
