The potentially dire consequences that could hit China’s economy in general, with unregulated discounts and out-of-bounds competition as the main culprit, is attempted to highlight in his latest analysis by Daisuke Wakabayashi, a New York Times correspondent and expert on Asian economic issues.

According to the NYT’s extensive article, the Chinese economy is under a very dangerous threat because of deflation. As Wakabayashi writes, “unrelenting competition, coupled with huge production potential, is hurting many sectors of Chinese industry. From the more traditional ones – such as iron and concrete, to the newer ones, such as photovoltaics and electric vehicles. In terms of the latter, the more modern ones, which are rapidly growing, what we are seeing is a ‘race to the bottom paradoxical dynamic has emerged: Chinese companies are dominating the market, but individual companies are struggling, increasingly, to squeeze out profits on a somewhat permanent basis.”

The explanation offered by the NYT editor is, schematically, as follows: In the beginning, and regardless of the market sector in question, a promising new technology or a breakthrough product appears. Immediately, Chinese manufacturers, by the dozens or even by the hundreds, rush into the new thing. They automatically maximize production while compressing costs to the minimum possible. As a result, the market as a whole is enlarged and, inevitably, the competition among the firms in business becomes increasingly fierce. This competition manifests itself through repeated-but-unstopable discounts on finished products. In this way, rival companies try to destroy each other by constantly lowering the prices of their products. Each in the hope that all its competitors will die, while it will be the only one to survive.

This phenomenon according to Daisuke Wakabayashi – which, it should be noted, is not unprecedented in the history of economics – is something far worse than deflation. Hence it has been dubbed “involution”, i.e. the opposite of “evolution” and, of course, “revolution”. In an attempt to render the term in Greek, one could say that China is threatened by the “endorse” of the economy, rather than the evolution or revolution to which China has been credited in recent years, with its sustained, galloping and aggressive in terms of outward-looking growth.

In the same article, the NYT author points out that while most governments around the world are trying to foster healthy market competition by seeking to restrain the price premium for the benefit of consumers (their citizens and, therefore, their constituents), in China the opposite is happening: Both the local, regional administrative authorities and the central government of Shi Jinping are seriously concerned about the involution and are planning measures to stop the frenetic course of devaluations.

In the words of leader Xi Jinping, “We will take urgent measures to curb low prices and anarchic competition. Also, we do not believe it is right and efficient for each region of our country to focus so much on developing areas such as AI and electric cars.” In the same vein, People’s Daily, the daily mouthpiece of the Communist Party of China (CPC) leadership, recently wrote that “discount war and ‘unintended’ competition ultimately favor ‘bad money’, which drives ‘good money’ out of our country’s market. No one will win if prices are allowed to spiral out of control.”

A few days ago, China’s government (the Supreme State Council) focused their attention eminently on the electric vehicle sector. And they pledged to bring “unreasonable competition” under control, following a thorough investigation of production costs, combined with strict price control.

The extraordinary measures under consideration to regulate the market by the Chinese state are seen as a reaction by the government to the recent move by BYD, one of the largest vehicle manufacturers in China, with significant export activity – and a presence in Greece, among other European markets. BYD has therefore decided to drastically reduce the selling price on 12 of the electric and hybrid vehicle models included in its range. And BYD has already been reprimanded, for this very policy, by the China Association of Automobile Manufacturers, a body that is, of course, directly controlled by the state.

In his NYT article, Daisuke Wakabayashi quotes typical statements from people in the market. Such as, for example, 37-year-old Ms. Zhang, a businesswoman in the ready-made garment industry, who states that “the involution phenomenon is unbearable. We are digging our own hole. In general, the market environment in China today is not at its best. Sales are stalled, while production is in overload.

“The buying public is demanding ever greater discounts. I, for example, have reduced my profit margin per shirt by 60% or more in recent years. Some of my competitors are even willing to sell at a loss, seeking to unload and turn their products into cash at all costs. But then my own customers demand that I drop prices even further, or they will shop from my rivals. So many businesses close down, they can’t afford it. But the pressure that those of us who are struggling do not relax.”

The price slide, which poses a systemic risk to the Chinese economy, is further exacerbated by the tariff policy being pushed by US President Donald Trump. At the same time, the concern about the onslaught of cheap Chinese goods, which often appear to be unrivalled, which is being seen in the West, has resulted in a share of goods returning or remaining unsold on Chinese soil. “Something that acts as fuel for China’s deflation engine,” as New York Times columnist Daisuke Wakabayashi points out.