The Economics Show How China is fighting ‘involution’, with Yanmei Xie
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Feb 13, 2026 Yanmei Xie, senior associate fellow and expert on Chinese political economy, explains China’s fierce export-driven competition. She outlines creeping deflation, collapsing profit margins and 'involution' as cutthroat price wars. Discussion covers local subsidies, AI and EV overcapacity, anti-involution measures like consolidation and centralised investment, and how export controls and Western pressure reshape supply chains.
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Deflation And Price Wars Worry Beijing
- China faces entrenched deflation and falling corporate profit margins across sectors.
- Beijing even instructed local governments to set procurement price floors to limit destructive price wars.
AI-Plus Stampede By Local Governments
- After Beijing issued an AI-plus plan, local governments launched matching targets and subsidies overnight.
- Tens of thousands of firms then claimed AI status to capture cheap credit, land and tax rebates.
Political Incentives Sustain Unprofitable Firms
- Local officials keep loss-making firms alive to avoid job losses and protect GDP figures tied to promotion prospects.
- Political incentives therefore weaken market-driven exit and consolidate overcapacity.