'Involution': Analyzing the Price Wars and Oversupply in China's EV Sector
UPSC Relevance
Prelims: Indian Economy (International Trade, Tariffs, Dumping, Countervailing Duty); World Economy (China's economic model); Science & Technology (Electric Vehicles).
Mains:
General Studies Paper 2 (International Relations): Effect of policies and politics of developed and developing countries on India’s interests.
General Studies Paper 3 (Economy): Indian Economy and issues relating to growth, development; Changes in industrial policy and their effects on industrial growth. The challenges posed by Chinese manufacturing overcapacity is a key topic for India.
Key Highlights from the News
China's economy, especially the Electric Vehicle (EV) sector, is facing a serious phenomenon called 'involution' (nêijuân).
This refers to counterproductive price wars where competitors in a sector sell goods below production cost to capture market share.
Main Reasons for this:
Oversupply and distribution of EVs in China.
High tariffs and countervailing duties imposed by the US and European Union on Chinese EVs.
With Western markets closed, Chinese companies were forced into intense competition in their domestic market, exacerbating price wars.
The Chinese government has now started taking strict measures to control this crisis.
Chinese companies are trying to overcome this crisis by localising abroad (setting up factories in Europe) and increasing exports to emerging markets like India.
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