China’s new energy companies are grappling with relentless efforts to dominate their sectors, both domestically and internationally, resulting in a stifling effect on innovation. As non-Chinese firms cut back on research and development (R&D) budgets due to intense competitive pressures, and new entrants find it difficult to penetrate the market, the concept of “involution” has gained traction in the global tech industry.
The term “involution,” coined by Clifford Geertz, suggests that increasing effort may not necessarily lead to a corresponding increase in outcomes, such as innovation. Once used to describe hyper-competition among Chinese university students, “involution” has now permeated the global tech landscape.
The trajectory of China’s solar photovoltaic (PV) industry illustrates this phenomenon. China holds a dominant position in the global solar energy industry, boasting over 85% market share. However, the shift from P-type to N-type solar generations, driven by China’s push for N-type commercialization, has led to oversupply issues and aggressive price cuts. Despite global resistance, China’s export tactics persist, prompting varied responses from governments, particularly in the US and Europe.
Similarly, the lithium battery industry, crucial for renewable energy storage and electric vehicles, faces challenges of involution. With China commanding over 60% and 85% of global market shares in lithium batteries and electric vehicles, respectively, competition has intensified. While leading Chinese companies like CATL and BYD continue to perform well, challenges persist for emerging lithium battery factories in the electric vehicle market.
Europe and the US have responded with initiatives aimed at bolstering their lithium battery supply chains. The US, through the “Inflation Reduction Act” (IRA) subsidy, promotes renewable energy and electric vehicles. However, the subsidy favors American businesses, hindering foreign entities, especially those collaborating with Chinese firms. In contrast, Europe aims to achieve battery production autonomy to counter China’s dominance, proposing subsidies to bolster its power battery industry.
The transition to green energy in the electric vehicle sector has also triggered trade conflicts, particularly between China and the US. Chinese automakers, such as BYD and GAC Aion, have gained prominence globally, while nationalistic sentiments in China have led to a decline in Japanese, Korean, and American brands.
As major Chinese automakers expand globally to counter domestic market saturation, the automotive sector remains a focal point for policymakers in Europe and the US. However, concerns persist about achieving true decoupling from China’s manufacturing, given the complexity of supply chains and Chinese investments in smaller nations.
Looking ahead, efforts to prevent China’s dominance in solar, batteries, and electric vehicles may lead to extreme measures and an unwinnable battle between global players.