Anti-Involution: A Turning Point for China's Economy or Just a Fad?
We must closely monitor the policy. Anti-Involution will be successful andHow much of a turning point this is for China's manufacturing sector and economy will certainly have ripple effects around the world and Thailand.In many dimensions, Thai entrepreneurs must be prepared to deal with opportunities and risks that may arise in a timely manner.
Back in the 2523s during the reign of President Deng Xiaoping, China began economic reforms to address social issues and poverty. This included infrastructure development and opening up the country to attract foreign investors under several national economic and social development plans. As a result, China's economy grew by an average of 10% per year between 2523 and 2543.
Furthermore, China's accession to the World Trade Organization (WTO) in 2001, coupled with its advantages in cheap labor costs and a large market, as well as supportive government policies, led to rapid growth in China's manufacturing and export sectors, earning it the nickname "Factory of the World," and ultimately becoming the world's second-largest economic power.
However, despite China's rapid economic growth in the past few years, China has faced significant challenges as the global economy has been in a recession, from the COVID-19 crisis to the current trade war.
Meanwhile, domestic demand has begun to slow, significantly slowing China's economic growth to an average of just 4.5% per year between 2565 and 2567. This contrasts with the continued expansion of manufacturing in many industries to create cost advantages and economies of scale, resulting in significant "overcapacity" leading to increasingly intense "price wars."
As can be seen from the net profit margin of the business sector shrinking by an average of 3% per year continuously from 2565 to the first half of 2568, the Chinese government has recently had to issue a new policy called "Anti-Involution" to deal with this problem and organize China's manufacturing sector in the new era.
What is Anti-Involution?
And where does it come from?
The term “Involution or Neijuan” in Chinese means “too much competition leads to inefficiency” and has been widely used in the economics industry to refer to such phenomena as the 996 work culture (working from 9 am to 3 pm, 6 days a week) and e-commerce platforms that compete with discounts and promotions to attract customers but make little profit.
And most importantly, the manufacturing sector, the heart of China's economy, has been expanding production capacity to achieve the lowest cost through economies of scale, leading to massive overcapacity and a severe price war that has impacted overall economic stability.
As a result, the 20th Politburo meeting in July 2568, a high-level forum for evaluating and determining the direction of China's economic policy, under the leadership of President Xi Jinping, announced Policy Anti-Involution It is an important national agenda that has received widespread attention and has become another National Policy Direction to solve the problem of excess production capacity.
Each industry has different measures in place. For example, in the automotive industry, Chinese authorities have summoned senior executives from 17 electric vehicle manufacturers to halt price wars. In the steel industry, they have been forced to close inefficient factories.
Anti-Involution hemostatic device
Before China faced Lost Decade
The aforementioned cost competitiveness problem in China's manufacturing sector has been evident for some time. This can be seen from China's Producer Price Index (PPI), which has contracted for 34 consecutive months, with the latest contraction as of July 2568 at 3.6%, particularly in the coal, steel, petrochemical, automotive, and consumer goods industries.
This has caused many parties to become concerned that the problem will cause deflation in China, as reflected in China's inflation rate, which has remained below the People's Bank of China's target of 2% for 30 consecutive months. In the first seven months of 2025, the average was -0.1%, potentially leading to a chronic "deflationary spiral" that is difficult to resolve.
The concern is that if China fails to break this cycle, the Chinese economy could face a similar fate to Japan's during the "Lost Decade," which began in the 1990s, when the PPI contracted for five consecutive years. This, coupled with subsequent contraction in inflation, severely impacted broad confidence, leading to an average annual growth rate of only 0.5% for the past two decades. Despite massive stimulus measures by the government and the Bank of Japan and the reduction of policy interest rates to negative levels, the Japanese economy will likely take a long time to regain momentum.
จาก Price War
to Global Deflation
The problem of excess production capacity and the price war in China has recently pushed a huge amount of cheap Chinese goods into the world market. Currently, China is the world's number 1 exporter, accounting for more than 15% of the world's export value, especially steel, electric batteries, and solar panels, of which China is the world's number 1 exporter.
As China's export prices begin to contract in 2566-2567, at -13% and -3% respectively, this will put pressure on the producer price index of countries/regions that import a lot of Chinese products, such as Latin America, Mexico, and ASEAN, where China is the number 1 import source, as seen in the inflation rates of these countries, including Thailand, which have been continuously negative.
This situation reflects that China is not only the world's largest exporter of goods, but also the world's most fearsome deflationary exporter. Furthermore, some Chinese exporters have taken advantage of their price advantage by using other countries as transit points to avoid import tariffs on exports to the United States, from the Trump 1.0 era until now. This has led US President Trump to want to close this loophole by imposing a transshipment tariff of up to 40%, spurring the trade war to become more widespread.
Anti-Involution…and the not-so-easy lessons
China experienced four consecutive years of major deflation from 2012 to 2016 due to slowing domestic demand and a similar overcapacity problem, particularly in the steel, aluminum, and coal industries. At that time, the Chinese government launched "supply-side structural reform," key to eliminating excess capacity in old industries and encouraging investment in new industries of the future. China's economy gradually recovered and emerged from deflation in 2016.
However, China's deflation situation has returned, and appears to be more severe than before. This is evident in the spread of excess production capacity to almost every industry, including future industries such as electric vehicles and solar panels. Despite this, the anti-involution policy creates a positive outlook in the short term, as reflected in the Chinese stock market index, which has risen approximately 10% since July 2568, particularly in stocks related to the industries targeted by the anti-involution policy.
However, implementing policies that focus solely on the supply side may not be enough. A combination of legal measures and large-scale demand-side stimulus measures is also required. Recently, the Chinese government has issued a draft amendment to the Pricing Law to control prices of goods and services so they are not sold below cost, and the Anti-Unfair Competition Law, which is expected to come into effect from October 15, 2568 onwards.
There has also been a draft of government-guided funds to support high-value-added industries and reduce reliance on industries with excess production, along with various domestic consumption stimulus measures. We will need to closely monitor the extent to which these solutions can be sustainably addressed.
Anti-Involution…Implications for Thailand
If China's anti-involution policy is implemented effectively, it will not only help balance prices and competition in the global market, but may also have multidimensional impacts on Thailand, including: Economic dimension Currently, Thailand imports the most goods from China, accounting for almost one-third of Thailand's total import value. China's control of domestic price competition may lead to higher prices for imported goods from China, such as steel, electronic parts, chemicals, and electrical circuits. This issue can be viewed from two angles. On the positive sideThis may cause Thailand's consumer inflation and producer price index, which have been contracting for 5 consecutive months and 6 consecutive months, to improve somewhat.
At the same time, this may enhance the price competitiveness of Thai SMEs, enabling them to compete with some low-priced products from China. However, on the other hand, it could lead to higher costs for Thai businesses importing cheap raw materials from China, and consumers themselves may inevitably face higher prices. On the export front, Thai exporters directly competing with Chinese products in the global market may face reduced price competition, such as those in computers and components, automotive parts, steel, chemicals, and rubber.
And in terms of investment, this policy could lead to a restructuring of China's foreign investment to improve quality. Previously, some Chinese investment in Thailand (the second-largest foreign investor in 2024) focused on establishing production bases to avoid taxes or clear excess goods, particularly in industries where China has significant investment, such as electric vehicles, electronics, and chemicals. These industries, which previously imported inexpensive raw materials from China, may increasingly use Thai raw materials, presenting an opportunity for Thai entrepreneurs to further integrate into these supply chains.
Finally, we must closely monitor the success of the Anti-Involution policy and its potential turning point for China's manufacturing sector and economy. It's certain to have ripple effects globally and in Thailand in many dimensions, and Thai entrepreneurs must be prepared to promptly address the opportunities and risks that may arise.
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