Qiushi article on involution and overcapacity hints at policy response
On Tuesday, Qiushi, the Party’s top journal, published an essay on tackling “involution-style” competition in key industries.
- It comes just two days after the People’s Daily ran a front-page commentary on the same issue.
Echoing the People’s Daily, the essay criticizes local government interference for fueling overcapacity and obstructing industry rebalancing.
- “Local government overreach…driven by flawed performance metrics that prioritize short-term growth…has fueled local protectionism, market fragmentation, and triggered a race to the bottom in policy incentives.”
- “Shortcomings in [China’s] bankruptcy and restructuring regime – combined with interference from local governments – have prevented the timely exit of obsolete and excess capacity, leading to a rise in zombie firms that’s holding back industrial consolidation.”
Get smart: Beijing has paid lip service to tackling overcapacity and local protectionism – but these two high-profile, back-to-back official commentaries may mean that action is finally on the horizon.
Get smarter: Widespread bankruptcies from policy-driven industrial restructurings will trigger mass layoffs and leave invested local governments in a precarious financial position.
- Talk is one thing, but actually crafting a detailed policy response that minimizes disruptions and ensures fairness is quite another.
What to watch: Proactive local government industrial policy is a key driver of China’s leadership in emerging industries.
- Will central regulators be able to rein in local policy excesses without impeding innovation or the expansion of promising new industries?