China’s Crackdown on Neijuan Competition

Chinese Premier Li Qiang addressed the National People’s Congress, denoting the government’s commitment to combat ‘Neijuan’. This term describes excessive competition leading to diminishing returns for businesses and individuals. The acknowledgement of Neijuan at such a high political level marks a very important shift in China’s approach to economic management amidst a slowing economy.

About Neijuan

Neijuan translates to ‘involution’ or ‘involutionary competition’. It refers to a cycle where intense competition forces companies and individuals to exert more effort without proportional benefits. In business, this results in price slashing and overproduction. For workers, it manifests as a relentless pursuit of skills and long hours, often without improving living standards.

Impact on Industries

Neijuan is particularly pronounced in China’s rapidly growing sectors. The electric vehicle (EV) industry exemplifies this issue. Companies engage in aggressive price wars, leading to reduced profits and unsustainable practices. Such competition undermines long-term growth and innovation.

Government Response

The Chinese government has intensified its focus on curbing Neijuan. This includes several policy reforms aimed at encouraging a healthier business environment. Key initiatives involve eliminating market fragmentation and local protectionism, which hinder fair competition. Stricter regulations are being implemented to ensure that industries prioritise innovation over destructive price wars.

Engagement with Industries

Chinese authorities have convened meetings with leaders from major sectors like technology, solar energy, and automotive. These discussions aim to develop strategies to mitigate the effects of Neijuan. The government is promoting the idea of ‘new quality productive forces’, directing attention towards high-tech industries while addressing the challenges of overproduction.

Global Competition and Challenges

The crackdown on Neijuan occurs within the context of increasing international tensions. The United States and the European Union have accused China of ‘dumping’ excess production into global markets at unsustainable prices. China refutes these claims, asserting that its growth stems from innovation and market demand. However, the government’s recent regulatory focus indicates a recognition of the risks associated with unchecked competition.

Future Directions

Li Qiang’s address outlined a vision for improving institutional rules and resource allocation within the Chinese market. The aim is to create a fairer competitive landscape that encourages innovation rather than mere survival. The government’s commitment to addressing Neijuan reflects a broader understanding of the need for sustainable economic practices.

Questions for UPSC:

1. Critically examine the concept of Neijuan and its implications for China’s economy.
2. Discuss the measures taken by the Chinese government to address excessive competition in key industries.
3. Explain the term ‘market fragmentation’ and its impact on business practices in China.
4. With suitable examples, discuss how international relations influence China’s industrial policies and practices.

Answer Hints:

1. Critically examine the concept of Neijuan and its implications for China’s economy.

1. Neijuan translates to ‘involution’, indicating self-defeating competition that leads to diminishing returns.
2. It forces companies to overproduce and slash prices, harming profitability and long-term sustainability.
3. For workers, it results in a relentless pursuit of skills and long hours, often without improved quality of life.
4. Neijuan is prevalent in high-growth sectors like electric vehicles, impacting innovation and market stability.
5. The official acknowledgment of Neijuan signifies a shift in China’s economic management approach amidst slowing growth.

2. Discuss the measures taken by the Chinese government to address excessive competition in key industries.

1. The government has intensified efforts to curb Neijuan through policy reforms aimed at encouraging a healthier business environment.
2. Key initiatives include eliminating market fragmentation and local protectionism to promote fair competition.
3. Stricter regulations are being implemented to prioritize innovation over destructive price wars in various sectors.
4. Meetings with leaders from technology, solar, and automotive industries have been convened to discuss solutions.
5. The focus is shifting towards high-tech sectors, encouraging sustainable practices and addressing overproduction issues.

3. Explain the term ‘market fragmentation’ and its impact on business practices in China.

1. Market fragmentation refers to the division of a market into smaller, often competing segments, leading to inefficiencies.
2. It hinders fair competition, as local protectionism can create barriers for businesses trying to enter or compete effectively.
3. Fragmented markets can lead to inconsistent pricing and quality, impacting consumer choices and business profitability.
4. It exacerbates the issues of Neijuan, as companies may resort to aggressive tactics to maintain market share.
5. The Chinese government aims to address this by streamlining regulations and promoting a more unified market approach.

4. With suitable examples, discuss how international relations influence China’s industrial policies and practices.

1. International tensions, particularly with the US and EU, have led to accusations of China ‘dumping’ excess production at low prices.
2. These accusations influence China’s regulatory focus, prompting a crackdown on practices perceived as unfair competition.
3. For instance, the electric vehicle industry faces scrutiny as price wars draw international criticism regarding sustainability.
4. China’s response includes emphasizing innovation and genuine market demand to counter negative perceptions abroad.
5. The evolving global landscape necessitates adjustments in China’s industrial policies to maintain competitiveness and address international concerns.