China Says It Has Too Much Competition — It Has Too Few Customers
China says it has too much competition — It has too few customers
WRITTEN BY GABRIELLE SORENSEN
27 October 2026
China now makes so many solar panels that it is on track to satisfy its projected domestic demand five to eight times over. But a glut with nowhere to go means that Chinese solar companies are going bust in droves, unable to slash prices low enough to remain competitive without selling at a loss.
This story parallels frontier industries across China right now. China has dozens of electric vehicle brands but, as prices slid, just three turned a profit in 2025. The same glut is present for batteries, machinery, and steel, leading to cut-throat price wars and a growing herd of zombie firms — loss-making companies kept afloat via subsidies and cheap credit.
But rewind to 2021 and the picture was very different. China’s property bubble had just burst and, as construction froze and developers collapsed, the sector that had previously driven nearly a third of GDP went into free fall, with property sales dropping by roughly a quarter in 2022 and threatening to take growth, jobs, and household wealth with it. Beijing responded by turning to industrial policy, pouring subsidies, cheap credit, and land into frontier sectors such as clean energy and high-tech manufacturing.
This pivot aimed to fill the economic hole left by collapsing investment, and it largely succeeded. But five years later, Beijing is reversing course. Faced with profit-destroying price wars, China has launched an anti-involution campaign to curb the excessive production of high-tech goods that it had previously encouraged.
This amounts to a sweeping crackdown on the overcapacity Beijing engineered. Involution (neijuan) describes a zero-sum competition with little to no reward, a self-defeating race to the bottom. For Beijing, this is exactly what is happening to the world-class firms it spent the last five years nurturing. Cut-throat competition has driven prices below sustainable levels, leaving firms unable to turn a profit. These firms are now killing each other.
The gap between what China produces and what its households can buy will not close on its own. Managing a problem is not the same as fixing it, and deferring structural reform means the costs of that deferral accumulate.
But this approach treats the symptom, not the cause. Yes, Chinese producers face price deflation. And yes, they have produced a supply glut that cannot be easily absorbed. But the reason is not that firms suddenly started competing too heavily without cause; it is that Chinese households simply receive too small a share of national income to buy what China’s factories produce — the result of government policies that prop up investment in industrial output at households’ expense.
A nation that cannot spend
At present, Chinese household consumption sits at 40 per cent of GDP, well below what its national income would predict, compared to 58 per cent in Thailand, which is slightly poorer per person in terms of purchasing power. China sits at the higher end of the upper-middle-income country group, yet its consumption share is still below the group’s 49 per cent average. It is low, too, against other investment-driven growth stories in East Asia, notably Japan or South Korea at similar stages of development.
More striking still, this gap has not closed. Chinese household consumption, as a share of GDP, has remained low and barely moved over the last two decades.
Economists from varied backgrounds have previously pointed this out. The IMF, in its most recent review of the Chinese economy, urged Beijing to boost domestic demand and rebalance towards households. Nor is it only outsiders: a senior adviser to the Chinese government recommended lifting total consumption — household and government — from 57 per cent to 70 per cent of GDP by 2035.
Chronically low consumption poses basic problems for Chinese welfare. Household consumption is a proxy for living standards, as it determines what households spend on food, medical care, education, and entertainment. The less households can consume, the less, economists assume, they enjoy. This comes with a strong caveat: low consumption today may simply be consumption deferred through savings. But that defence only holds if the investments those savings fund produce a decent return — and, as mounting debt and losses across China’s frontier industries show, they currently do not. China’s credit intensity – the rate at which credit grows relative to output — has more than doubled since 2021, rising from 1.5 to 3.8.
Investment in industrial capacity is not inherently bad. It expands long-term productive capacity and lets economies climb the value chain, manufacturing increasingly complex goods for higher value-added returns. But this is conditional on investment sustainability. If credit growth continues to blow past output and China is left with a deluge of struggling firms with nowhere to sell, it is over-investing at the expense of household living standards.
There is no free lunch. The subsidies, cheap land, and below-market credit that flowed to high-tech industry are financed, directly or indirectly, by households — through taxes or high savings that earn less than they should. That money could have funded their consumption instead. Herein lies the irony: the income taken from Chinese households to build these factories is the very income that might have let them buy what the factories make.
Some economists go further, arguing that China deliberately suppresses consumption through financial repression. In this account, the government has kept deposit rates below inflation, funnelling cheap credit into industry and keeping the exchange rate low to favour exports — all at the expense of households’ living standards. Money households do not spend is money available to invest, an attractive proposition for a state intent on rapid industrial build-out. Forced savings are how capital-scarce economies industrialise at speed, and there is a history of success. But that bargain only holds when capital is scarce enough to earn its keep, and China may have passed that point some time ago.
Treating the symptom
If none of this were true — and Chinese households had captured a larger share of national income over the past decade — they would be able to absorb more of the current supply glut. A larger consumer base would be able to purchase a more substantial portion of domestic Chinese output, allowing firms to clear their inventories and remain solvent. In this counterfactual scenario, Chinese output would also be more tilted towards the consumer goods that these households demand, rather than those the state incentivised.
But anti-involution sidesteps this entirely. Rather than committing to necessary economic rebalancing — albeit a bit late — it suppresses market competition. Measures include profit-sustaining price controls that prevent companies from selling below cost and output caps that require factories to produce less than they did the year prior.
Beijing has, on the surface, made overtures towards boosting consumption. China’s most recent Five-Year Plan, launched in July 2026, contains explicit measures to that end, and the largest dedicated item, a consumer trade-in scheme, is worth 250 billion yuan per year. The difficulty is in what these measures ultimately amount to. By contrast, Bloomberg reported in June that China was preparing to invest some two trillion yuan over five years into a national AI data centre buildout.
Anti-involution has clear goals: raise prices, reduce competition, and rein in investment. China has a glut of goods because it deliberately built capacity at the expense of the consumers who might have otherwise bought its output. Now, it is trying to stem the bleeding by consolidating firms and minimising their losses. But none of this fixes the longstanding asymmetry that put China in this position, nor will it help China keep growing its economy and industrial base.
The reckoning, deferred
China has ambitions of becoming a rich country, and rapid, investment-driven industrialisation has carried many export-led East Asian economies there. But investment shares are generally expected to peak as economies mature. Chinese capital formation stood at 40 per cent of GDP in 2024, down from cent in 2013. East Asia’s earlier industrialisers reached comparable heights — Japan and South Korea both pushed into this investment range and sometimes a bit higher — but for a shorter period of time, before their rates receded as they grew richer. China, on the other hand, has sustained such levels for over two decades, with no clear end in sight.
To invest is to make a bet on the future. When the bet fails, the bill comes due. For years, China assumed it could ship its excess industrial goods abroad through ever-growing trade surpluses — the world absorbing what Chinese households could not — or carry the cost on cheap credit, kept flush by a rapidly expanding economy. Both of those corridors are now narrowing.
Global markets cannot absorb an ever-increasing share of Chinese output, and appear to be hitting their ceiling. Worse still, many trading partners — especially in Europe and the United States — are artificially lowering that ceiling by walling off Chinese exports.
More worryingly, as this shortfall fails to pay for itself, China is forced to paper it over in the form of a mounting debt burden, with government debt-to-GDP more than doubling to 88 per cent in 2024 from 41 per cent in 2015. Nevertheless, a crisis is unlikely: China’s savings are vast and its capital account is largely closed. But a sustainable debt burden is not a costless one. Each year, more national income goes to servicing yesterday’s overbuilding, exacerbated by soft growth and weakening prices.
The gap between what China produces and what its households can buy will not close on its own. Managing a problem is not the same as fixing it, and deferring structural reform means the costs of that deferral accumulate. There are three ways to resolve the discrepancy: sell the surplus abroad, carry it on debt, or let Chinese households buy it. The first option is constrained by overwhelmed global markets and trade retaliation; the second is becoming increasingly costly as debt accumulates. That leaves the third: committing to the reforms that China keeps deferring, whether in the form of higher deposit rates, stronger social welfare spending to curb precautionary saving, or a shift of state resources away from overabundant firms. The fruits of Chinese industry have nowhere else to go, and neither, increasingly, does China.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent those of the 9DASHLINE.com platform.
Author biography
Gabrielle Sorensen is an economic researcher and freelance writer, with previous bylines in publications such as The Hub, Policy Options, and elsewhere. She holds an MA in Economics from the University of British Columbia. Image credit: Unsplash/TruckRun.