On July 2nd, sectors such as steel and photovoltaic (PV) in China's A-share market saw a surge in limit-up stocks. Behind the boosted market sentiment lies the clarion call for "anti-involution" sounded across various industries. Following the Central Financial and Economic Commission's sixth meeting, which directly addressed the governance of "involutionary" competition and emphasized "promoting the orderly exit of backward production capacity", a new round of industrial "anti-involution" and capacity reduction initiatives has kicked off, with the PV, steel, and cement industries already swiftly launching production reduction efforts.
Recently, leading domestic PV glass enterprises announced a collective 30% production cut starting from July to ease the industry's "involutionary" competition. The China Cement Association released the "Opinions on Further Promoting the 'Anti-involution', 'Stable Growth' and High-Quality Development of the Cement Industry", clearly stating that it will optimize industrial structure adjustment. In the steel industry, some steel mills have recently received notices on emission reduction and production restrictions.
The active production reduction and restriction actions by industries have been widely praised by the market. Kaiyuan Securities' research report pointed out that the demand for the PV industry will weaken in the second half of the year, and the prices of the industrial chain will be under overall pressure. Currently, the prices of products in multiple links of the PV industry have fallen below the cash cost line. Against this background, the planned collective production reduction by leading PV glass enterprises is in line with policy orientation and will promote the improvement of the industry's supply and demand structure.
Behind the recent intensive implementation of "anti-involution" measures in multiple industries is the widespread concern of all sectors of society about the increasingly fierce "involutionary" competition, as well as the continuous intensification of policy-level efforts to rectify such competition.
"This round of 'anti-involution' covers a wider range, including local governments, enterprises, and residents," noted Zhao Wei, chief economist of Shenwan Hongyuan. The Producer Price Index (PPI) has continued to decline, competition in investment promotion across regions has intensified, and residents are also affected by "involution". In 2023, the average weekly paid working hours of all residents increased by 13.9 hours compared with 2018.
From the Central Political Bureau meeting on July 30th last year, which first proposed preventing "involutionary" vicious competition, to this year's government work report, which for the first time included comprehensive rectification of "involutionary" competition as a key task, and to the recent revised "Anti-Unfair Competition Law" which improved regulations on governing platform "involutionary" competition, "anti-involution" has been incorporated into the scope of legal regulation.
Overall, this round of "anti-involution" highlights the coordination between policies and market mechanisms. Zhao Wei believes that this round of "anti-involution" has stronger synergy. In this round of rectification, industry self-discipline and market mechanisms may be more valued; or through policy support for greenization and intellectualization, backward production capacity will be eliminated and inefficient production capacity will be transformed, achieving the dual goals of high-quality development and orderly market competition.
In contrast, the Central Financial and Economic Commission's sixth meeting made a more positive statement on promoting the exit of backward production capacity, directly addressing the pain point of disorderly investment promotion by local governments, and the proposed measures are more targeted, with stronger operability and practical effectiveness.
Different from the "supply-side structural reform" in 2015, this round of "anti-involution" clearly lists "promoting the construction of a unified national market" as a core task, and emphasizes "orderly exit of backward production capacity" and "standardizing local investment promotion". According to the research report of My Steel Network, the future supply-side optimization will focus more on "improving quality and efficiency" rather than "simple compression". The key is to promote the transformation of the manufacturing industry from "low-price homogeneous competition" to "high-end differentiated competition" through technological upgrading, innovation guidance, and institutional supply, so as to promote the overall upgrading of the industrial chain.
Regarding the chaos in local investment promotion, Chi Rida, chief partner of Shanghai Gongcheng Yingtai Law Firm, once suggested in an interview with reporters that the "Bidding Law" should be revised to guide the reasonable and correct application of bid evaluation standards, solve problems such as market segmentation, local protectionism, and insufficient competition that hinder fair market competition, solve the problem of low-price and low-quality winning bids from the legal and institutional aspects, and maintain a fair competitive market environment.
With the convening of the sixth meeting of the Central Financial and Economic Commission, various industries have attached greater importance to "involutionary" competition, and market institutions generally expect more targeted "anti-involution" policies to be introduced in the future. Industries such as PV, steel, and cement are expected to usher in a supply-side turning point.