From coffee to cars to real estate, there’s a recurring pattern in China: companies rush into an industry, then resort to discounts to stay afloat. That has economists worried.
Natixis’ study of 2,500 listed Chinese companies reinforce how volume is growing while value is being hurt by deflationary pressure, Alicia Garcia Herrero, the firm’s chief economist for Asia-Pacific, said on a webinar Friday. “You can see it sector by sector, company by company.”
“On the surface you’re dominating, but deep inside you’re paying a high price to dominate,” she said. “You don’t get the revenue needed to continue.”
A reflection of the breadth of impact, consumer prices fell by 0.1% in the first six months of the year from a year ago, while factory-gate producer prices dropped by 2.8%, official data shows. In that time, only seven of 48 producer price sub-categories rose, versus about half of the 37 consumer price components.
That fierce and often unproductive competition is described as “involution” in China. The government has picked up on the term in recent policy documents, calling for efforts to tackle the trend.
While the trend has made tech and products more affordable for the mass market, it has also underscored worries of a vicious cycle that forces businesses to cut more jobs.
“With involution, the Chinese economy feels much colder than the headline growth suggests,” Larry Hu, chief China economist at Macquarie, said in a report Thursday. He pointed out that mainland China-listed “A share” companies expanded their workforces by just 1% in 2024, the slowest on record.
