The Chinese electric vehicle (EV) industry has recently been engulfed in a severe price war, locally termed as nêijuàn or involution. This phenomenon has led to retail prices falling below production costs, causing widespread losses. The Chinese government under President Xi Jinping has intervened to stabilise the sector and curb unproductive competition.
About Involution in Economic Context
Involution means a process of turning inward. The term was popularised by anthropologist Clifford Geertz in 1969 to describe a situation in Java’s agriculture where increased labour and complexity failed to raise individual incomes. In modern China, involution refers to intense rivalry where firms slash prices to gain market share, harming overall profitability.
Price Wars in China’s Electric Vehicle Industry
China’s EV market has over 120 manufacturers competing fiercely. Price cuts have driven retail prices below production costs, causing losses. This has created instability and threatens the survival of smaller firms. The sector’s oversupply and fragmented market exacerbate this destructive competition.
Impact of International Tariffs on Chinese EVs
The US imposed 100% tariffs on Chinese EVs from 2024, effectively blocking imports. The European Union introduced additional countervailing duties ranging from 17% to 35% to counter China’s subsidies. Turkey and Mexico also raised tariffs to protect their domestic markets. These measures limit China’s export growth, forcing firms to compete aggressively at home.
Government Measures to Control Market Involution
China’s Ministry of Industry and Information Technology pledged to rein in involution in May 2025. The Politburo issued directives against disorderly price competition. A draft pricing law aims to ban below-cost selling and algorithmic price manipulation. President Xi’s article in Qiushi magazine called for an orderly exit of outdated capacity and a phased end to price wars.
Global Influence and Strategic Responses
Chinese EVs accounted for 75% of new EV sales growth in emerging markets outside China in 2024. To offset trade barriers, manufacturers are localising production abroad, such as BYD in Hungary and Turkey. They also diversify exports to emerging economies. However, capacity expansion and localisation remain uneven and gradual.
Future Outlook for China’s EV Market
The government’s crackdown on price wars aims to consolidate the fragmented industry. This may reduce the number of manufacturers and improve profitability. Strategic localisation and diversification might help Chinese OEMs sustain global competitiveness despite trade restrictions.
Questions for UPSC:
- Critically discuss the impact of international trade tariffs on domestic industries with reference to China’s electric vehicle sector.
- Examine the concept of economic involution and analyse its implications on labour productivity and income distribution using suitable examples.
- What are the challenges faced by emerging economies in adopting electric vehicles? How can global trade policies influence their EV market growth?
- Discuss in the light of China’s EV industry how government intervention can regulate market failures such as destructive price wars and oversupply.
