The Mandarin word "Neizuan," or "involution," captures a critical modern business dynamic. It describes a situation where intense, cutthroat competition, such as in the electric vehicle market, leads to diminishing returns for all participants. The term is also used by workers to describe the feeling of "running ever faster on the treadmill to get nowhere."
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Focusing only on trendy sectors leads to intense competition where the vast majority of startups fail. True opportunity lies in contrarian ideas that others overlook or dismiss, as these markets have fewer competitors.
Intense competition forces companies to innovate their products and marketing more aggressively. This rivalry validates the market's potential, accelerates its growth, and ultimately benefits the entire ecosystem and its customers, rather than being a purely zero-sum game.
China's harsh, deflationary economic environment and intense domestic competition, while causing many companies to fail, effectively hones a select few into highly resilient and efficient champions. These survivors are now prepared for successful global expansion.
While government support helps, China's rapid adoption of Level 2+ smart driving is primarily driven by fierce domestic EV competition. In a crowded market where over half of new car sales are electric, automakers use advanced autonomous features as the most effective means to differentiate and attract consumers.
Uber's CEO argues China's EV dominance is a product of a unique hybrid model. The government sets a top-down strategic goal, but then over 100 domestic companies engage in "brutal," bottoms-up competition. The winners, like BYD, emerge battle-tested and highly innovative.
In response to deflation and eroding profits from hyper-competition, the Chinese government's "anti-evolution" policy is a deliberate strategy to force consolidation, reduce overcapacity, and restore pricing power, thereby boosting corporate return on equity.
China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.
China's campaign against "evolution" (excessive competition) is not a broad economic stimulus. It specifically benefits sectors like EV batteries, steel, and cement where state control or rapid market consolidation can restore pricing power and profitability.
Major AI players treat the market as a zero-sum, "winner-take-all" game. This triggers a prisoner's dilemma where each firm is incentivized to offer subsidized, unlimited-use pricing to gain market share, leading to a race to the bottom that destroys profitability for the entire sector and squeezes out smaller players.
Contrary to the Western perception of a monolithic state-run system, China fosters intense competition among its provinces. Provincial leaders are incentivized to outperform each other, leading to massive, parallel innovation in industries like EVs and solar, creating a brutally efficient ecosystem.
