Policy Landscape

China’s Anti-Involution Campaign Targets Overcapacity and Margin Pressure While domestic consumption growth in China has slowed, external demand is also under pressure due to rising trade barriers. Overcapacity and intense price competition have generally eroded Chinese producers’ profitability. The Chinese government recently introduced various measures to address industrial overcapacity, including within the battery value chain. Commonly referred to as ‘anti-involution’, these policies focus on ‘quality over quantity’ and phasing out low-quality, uncompetitive producers. The motivation is also to combat deflation. As the industries experiencing intense price competition are predominantly driven by private enterprises, and misalignment of incentives from local government complicates the central government’s efforts to curb overproduction, the general sentiment in China is that the government will adopt a more gradual and market-led approach to rein in overcapacity rather than resorting to immediate, stringent capacity mandates. Some private companies are in a concerted effort with their peers to get on board with anti-involution efforts, e.g. LFP CAM producers, while others remain in hyper-competitive segments of the supply chain.

Source: Content & analysis provided by CRU Group (Distinguished Partner). For more information, visit crugroup.com.

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