1/15 Very good Bloomberg piece on Beijing’s recent push to curb overcapacity through an “anti-involution” campaign. It is important to remember in this context that while excess capacity has been... www.bloomberg.com/news/article...
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aug 23, 2025, 6:46 am • 3 0 • view
2/15 a problem in China for at least 10-15 years, it's latest manifestation was a direct consequence of the collapse of a property bubble which was itself set off by policies Beijing implemented in order to protect the economy from an earlier case of weak demand and deflation.
aug 23, 2025, 6:28 am • 12 1 • view
3/15 When investment in the property sector dropped sharply after 2021-22, what "normally" should have happened is that the sharp resulting decline in Chinese investment growth should have led to a sharp decline in GDP growth.
aug 23, 2025, 6:28 am • 12 1 • view
4/15 This, after all, has happened after property busts in nearly every other country. GDP growth is largely equal to consumption growth and investment growth, and in China, investment (especially property investment) comprised a much higher share of GDP than anywhere else.
aug 23, 2025, 6:28 am • 11 0 • view
5/15 But China's GDP growth didn't slow at all. Why? Because Beijing did not allow the decline in property investment to translate into a decline in overall investment. It "solved" the declining property investment by engineering a surge—almost RMB for RMB—in manufacturing investment.
aug 23, 2025, 6:28 am • 17 1 • view
6/15 More manufacturing, in other words, was not driven by any perceived increase in Chinese or global demand. It was wholly a reaction to the decline in property investment combined with a political determination to continue meeting excessively high GDP growth targets.
aug 23, 2025, 6:28 am • 15 1 • view
7/15 The consequence was perhaps predictable: the creation of excess capacity in the property sector now shifted to the creation of excess capacity in the manufacturing sector, and especially in politically preferred sectors, like solar panels, EVs and batteries.
aug 23, 2025, 6:28 am • 16 1 • view
8/15 But this means that unless Beijing is willing to give up the GDP growth target (which for now, it isn't), it cannot "resolve" involution—i.e. cut capacity sharply in the worst affected areas—unless it can engineer a corresponding upsurge in demand elsewhere.
aug 23, 2025, 6:28 am • 11 0 • view
9/15 As it is extremely unlikely that we will see property investment recover any time soon, for China to cut capacity in the most involuted sectors of manufacturing will require shifting debt and resources to create another source of growth.
aug 23, 2025, 6:28 am • 12 1 • view
10/15 The most likely outcome, in my opinion, is it shifts investment into other manufacturing sectors, those not yet suffering involution. This, of course, won't resolve the problem of excess capacity, but it will make it much less concentrated in a few key sectors.
aug 23, 2025, 6:28 am • 18 2 • view
11/15 Another possibility (on which they already seem to have started), is to increase spending on infrastructure. The problem is that China already has "excess capacity" in infrastructure, after the huge amounts that poured into infrastructure investment between 2010 and 2017.
aug 23, 2025, 6:28 am • 18 0 • view