How China’s anti-involution policy is rewiring global green tech

China is embarking on a sweeping industrial reset. In a move that could reverberate across global markets, Beijing has formally adopted an ‘anti-involution’ strategy, designed to rein in margin-crushing competition in its fast-growing ‘New Three’ sectors: solar, lithium batteries and electric vehicles (EVs). Once engines of innovation and global decarbonisation, these industries are now facing overcapacity, collapsing prices and eroding profitability.

‘Involution’ (内卷), a term that has gained currency in China’s economic discourse, describes a cycle of hyper-competition where firms chase volume and cost-cutting at the expense of innovation and profitability. Originally rooted in anthropology, it now reflects a broader industrial malaise: companies locked in a race to the bottom, expanding capacity and slashing prices simply to survive.

“Involution’ (内卷), a term that has gained currency in China’s economic discourse, describes a cycle of hyper-competition where firms chase volume and cost-cutting at the expense of innovation and profitability.”

In 2025, Beijing elevated anti-involution to a national strategy with a clear objective: shift the industrial model from quantity to quality, restore pricing power and build long-term resilience in sectors critical to the global energy transition.

This marks a departure from China’s earlier industrial playbooks.

The 2015 supply-side reforms relied on administrative shutdowns and consolidation of state-owned enterprises to clean up heavy industries like steel and coal. Today’s approach, dubbed ‘Supply-Side 2.0’, leans on market mechanisms and technical standards, unfolding against a backdrop of producer price deflation, slowing GDP growth and rising public debt. The tools are more surgical: grid access rules, energy efficiency thresholds, financing discipline and selective enforcement.

Why involution became a policy priority

The sectors under scrutiny are not just domestic growth engines – they are foundational to China’s green industrial strategy and pivotal to global decarbonisation. Yet their rapid expansion has triggered financial strain and market fragmentation.

In solar, China’s solar manufacturing capacity has surged past 1 terawatt annually, nearly double global demand. The result: a collapse in prices across the value chain. Average module prices are down more than 50%, while polysilicon has tumbled from RMB120 (~US$16)/kg to around RMB40 (~US$6)/kg. The financial toll is mounting. In the first quarter of 2025, 31 listed solar firms reported a combined net loss of RMB12.6 billion (~US$1.7 billion)¹.

Battery makers face a bifurcated market. Sub-scale producers are struggling with thin margins and idle capacity, while giants like CATL continue to expand into energy storage and advanced chemistries. A handful of global leaders and specialised firms are emerging, while many smaller players face extinction.

The EV sector is deeply fragmented. China has 169 automakers, more than half with less than 0.1% market share². Local governments have fuelled this proliferation through land grants, subsidies and tax incentives, triggering a race to the bottom on pricing. BYD’s Seagull mini-EV sells for just RMB55,800 (~US$7,800), yet even leading brands are seeing profitability erode. Only two of 18 listed EV firms earned more than RMB10,000 (~US$1,400) per vehicle in the first half of 2025.

“Local governments have fuelled this proliferation through land grants, subsidies and tax incentives, triggering a race to the bottom on pricing.”

Policy tools: From tariffs to technical standards

Beijing is deploying a layered policy strategy to rein in excess and inefficiency across its green technology sectors. Rather than relying on sweeping interventions, regulators are combining market signals with technical standards to reshape industry behaviour.

A key directive, Document 136, issued in February 2025, requires all new solar and wind projects to secure grid connection and electricity absorption agreements before construction begins. The policy also transitions pricing from fixed tariffs to market-based trading, exposing developers to real-time volatility and encouraging investment in dispatchable, bankable systems.

In the upstream solar supply chain, new energy consumption standards are putting pressure on coal-intensive polysilicon producers. The Ministry of Industry and Information Technology is inspecting more than 40 sites, with draft thresholds that few currently meet³. The policy is expected to tighten supply and improve ESG performance by nudging production toward hydro-powered regions such as Sichuan and Yunnan.

In EVs, the government has endorsed a 60-day supplier payback mandate, aimed at reducing systemic financing risk. Enforcement remains uneven, but the intent is clear: unwind fragile working capital chains that have supported unsustainable growth.

China is also taking steps to stabilise global lithium markets. The suspension of low-grade lepidolite mining in Yichun, which accounts for roughly 4% of global supply , reflects a willingness to act as a swing producer. The decision has already lifted futures prices and may reshape global supply chains while curbing environmental damage.

Global implications: A new industrial logic

China’s anti-involution campaign is not just a domestic clean-up. By curbing low-quality competition and enforcing discipline, China is shifting from an export-driven model to one focused on high-quality, innovation-led growth.

“By curbing low-quality competition and enforcing discipline, China is shifting from an export-driven model to one focused on high-quality, innovation-led growth.”

For global investors, the implications are far-reaching. Deflationary pressure may ease in key commodities such as lithium and solar modules, where China has historically driven steep price declines. As China exits low-margin segments, new opportunities may open for producers outside its borders.

Global supply chains are likely to fragment. Core materials such as wafers and polysilicon will remain concentrated in China, while downstream assembly shifts to meet localisation requirements in key markets. Trade flows will also evolve, shaped increasingly by tariffs, local content rules and policy-driven premiums that redefine competitiveness.

“Trade flows will also evolve, shaped increasingly by tariffs, local content rules and policy-driven premiums that redefine competitiveness.”

From involution to evolution

The anti-involution strategy is not just a defensive maneuver – it’s a calculated evolution. If executed well, it could accelerate the global energy transition by shifting the focus from cost-cutting to system reliability and sustainability.

For investors, the message is clear: the era of hyper-growth and margin erosion is ending. Success will depend on the ability to deliver policy-adjusted returns, navigate localisation rules and compete on quality rather than cost.

“For investors, the message is clear: the era of hyper-growth and margin erosion is ending.”

China is not stepping back from global leadership in clean energy. It is recalibrating. And in doing so, it may be laying the foundation for a more resilient, innovation-driven growth model that could reshape global markets for years to come.

¹Copper Plate Second Generation 1912, ‘As of the first half of 2025, centralised photovoltaic power stations in Fujian, China have suffered losses exceeding 18 billion yuan. From Gansu in the west to Hubei in central China, the profitability of power stations has significantly declined’, (xueqiu.com), September 2025.
²Institute for Energy Research, ‘China’s Auto Industry Leaves Competitors in the Dust Due to Its Agility’, (instituteforenergyresearch.org), September 2025.
³Lin Shuijing, ‘Polysilicon market concentration increases, industry integration accelerates’, (paper.people.com.cn), August 2025.