“Involution” is Beijing’s favorite word
Special points to highlight in this report:
- Chinese policymaking circles have become obsessed with the concept of “involution”, with senior policymakers from Xi Jinping on down demanding that it stop. We should expect that an important focus of policymaking in the next few months will be on ways to address involution, including by closing down excess capacity in industries where the problem is most evident.
- But as is often the case in China, policymaking is more likely to address symptoms of the problem than its root cause. That’s because involution is not a consequence of temporary factors, bad luck, adverse conditions or managerial incompetence. It is structurally baked into the growth model, and to resolve “involution” requires implementing structural changes that Beijing so far shows no sign of wanting to implement.
- On August 12, Beijing announced plans to offer interest subsidies for qualifying personal consumption loans and eligible business loans in the services sector. The subsidies will almost certainly expand lending (some of which will flow into the stock market), but the sharp contraction in household loans in July suggest that it will not be enough.
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