By Hasan Muhammad

Editor's Note: The writer is a freelance columnist on international affairs based in Karachi, Pakistan. The article reflects the author's opinions and not necessarily the views of China Economic Net.

In the labyrinth of China's economic discourse, a new term has emerged with quiet force: "de-involution." Rooted in the internet slang of overworked youth, it has transcended its origins. Involution describes a corrosive cycle where relentless competition yields diminishing returns, trapping firms in a zero-sum race to the bottom. China's de-involution campaign, launched in 2025, seeks to dismantle this dynamic, redirecting its economy toward high-quality development. This shift, as much a domestic necessity as a global signal.

The economic logic of involution is starkly illuminated through game theory, specifically the Prisoner's Dilemma. Firms, in their quest for survival, slash prices to capture market share, triggering a cascade of copycat cuts. Margins erode, profits dwindle, and the capacity for innovation withers. China's response is not to impose rigid price controls but to recalibrate incentives, fostering cooperation over cutthroat rivalry. By preserving a multiplicity of players, especially mid-sized firms that often drive disruptive innovation, China aims to safeguard its technological edge.

China is looking abroad for inspiration, not to mimic but to adapt. The EU's Carbon Border Adjustment Mechanism offers a model for raising industry standards, forcing low-end producers to innovate or exit by increasing compliance costs. Japan's industrial ecosystems, exemplified by Toyota’s cross-shareholding and profit-sharing with suppliers, demonstrate how interdependence can stabilize markets and curb price wars. German SMEs, often privately financed, prioritize long-term specialization over short-term scale, shielding them from equity market pressures. These examples underscore a universal truth: de-involution hinges on aligning incentives to prioritize value over volume.

China’s economic resilience, evidenced by 5.3 percent GDP growth in the first half of 2025, provides a foundation for this shift. The 14th Five-Year Plan (2021-2025) has emphasized innovation-driven growth, with milestones in electric vehicles (EVs), digital infrastructure, and green energy. Nearly half of new car sales in 2025 are new energy vehicles, and China leads globally in EV patent quality.

Globally, de-involution is more than a domestic fix; it’s economic diplomacy. For decades, China’s manufacturing prowess was tied to low-cost goods, fueling perceptions of unfair competition. The de-involution push, aligned with high-quality development, signals a pivot toward producing trustworthy, innovative products. This addresses international concerns, particularly in developed economies wary of China’s export dominance. By emphasizing quality over cost, China seeks to reshape its global image, a move reinforced by its leadership in green technologies - 75 percent of global lithium-ion battery production and 80 percent of solar modules.

However, global trade tensions, particularly with the U.S., still a challenge. US Tariffs imposed in 2025, escalating to 145 percent in a short time, threaten China’s export-led growth. China’s response - ramping up exports to Europe and Latin America - reflects adaptability but risks further friction. The de-involution strategy, by fostering sustainable competition, aims to mitigate overcapacity issues that exacerbate these tensions. If successful, it could stabilize global supply chains.

The stakes are high. China’s economy, contributing 30 percent to global growth in 2025, remains a linchpin of the world economy. Yet, skepticism about official data persists, with estimates suggesting actual growth may be closer to 2.4-2.8 percent. De-involution’s success hinges on execution, balancing regulatory finesse with market freedom. As Beijing tackles this, the world watches. A China that competes on innovation rather than price could redefine global markets, but missteps could entrench economic woes. In this delicate equation, China’s de-involution is not just a policy, but it is a bet on a future where quality trumps quantity, with ripples felt far beyond its borders.