Beijing — In a rare and pointed intervention, the Chinese government has ordered electric vehicle manufacturers to stop slashing prices and expanding output at unsustainable rates, warning that the sector’s unchecked race for market share is driving the economy into what Beijing calls “involution,” a self-defeating spiral of overproduction and collapsing margins.
The warning, issued by China’s National Development and Reform Commission (NDRC), comes as President Xi Jinping doubles down on economic discipline across high-growth sectors like AI, solar energy, and electric vehicles. He has openly condemned what he called “herd-style investments” by local governments and companies competing blindly for dominance, a phenomenon now derailing China’s push for high-quality growth.
Authorities have summoned executives from top carmakers including BYD, Geely, and Great Wall Motors for urgent meetings, pressuring them to halt the destructive cycle of deep discounting that has gripped the world’s largest EV market. Over the past year, the average retail price of some popular models has fallen by more than 20%, with BYD’s Seagull model recently offered for as low as 55,800 yuan, nearly 20% below its list price.
China’s central planners are particularly alarmed by what they see as “low-level internal competition,” a phrase increasingly used by regulators to describe counterproductive rivalries that generate excess capacity, depress quality, and drive firms toward insolvency. “The entire sector is overheating from within,” said a policy analyst at a Beijing-based think tank. “The government’s message is clear: compete on innovation and quality, not on a race to the bottom.”
In response, China’s legislature is preparing amendments to its pricing law, its first in nearly three decades. The revised statute will give the government power to define and punish “unfair pricing behavior,” signaling a broader crackdown on both corporate strategy and the laissez-faire behavior of local officials who have long incentivized overexpansion in favored industries.
The pressure is already being felt in corporate boardrooms. In a coordinated pledge last week, 17 Chinese automakers, including BYD, committed to paying their suppliers within 60 days, a move seen as both a goodwill gesture and a financial bandage on an industry bleeding margins amid price warfare. The NDRC has also moved to restrict the construction of duplicate industrial parks and has encouraged local governments to submit innovation plans that align with long-term national interests.
The term “involution” is not new in Chinese policy discourse but has gained traction as a powerful metaphor for stagnation despite frenetic activity, a treadmill economy where more effort yields less progress. Beijing appears determined to prevent the EV sector from becoming a cautionary tale of its development model.
Analysts caution, however, that enforcement will be difficult. Many provincial governments have staked political capital and resources on championing local EV brands, creating perverse incentives to keep expanding production regardless of national policy shifts. Some warn that without direct accountability for executives and regional officials, China’s capacity-correction campaign may end up as another bureaucratic paper tiger.
Still, the global implications are significant. A glut in domestic supply could further push Chinese EV makers to accelerate exports, particularly to the European Union, a strategy that may intensify trade tensions with Brussels, which has already raised concerns about subsidized Chinese vehicles flooding European markets.
According to The Guardian, the NDRC’s recent meetings with EV giants and its legal reforms are part of a broader attempt to tame “involution” and align China’s industrial growth with sustainable economic goals. President Xi’s speech urging an end to “disorderly expansion” in emerging sectors marks a shift from volume-based growth to value-based development, an ideological pivot with profound global ripple effects.
