What Western Companies Really Need to Know About Chinese Competition

A couple of years ago I started asking this question, but this year I started to receive more and more interesting answers: "How do you compete with Chinese competitors?"

Naturally, the further away from China the person is, the more simplistic the answers are: Some dismiss Chinese companies as "copycats." Others see them as an unstoppable force. Both perspectives miss what's really happening.

After facilitating partnerships between Chinese and Western companies across sectors from retail to manufacturing, I've learned that success requires moving beyond assumptions to understand the why behind Chinese competitive dynamics.

Understanding "Nei Juan" and "Fan Nei Juan"

The most misunderstood phenomenon in China today is Nei Juan (内卷) - "involution." But to truly understand Chinese competition, you need to grasp both this concept and the government's response: "Fan Nei Juan" (反内卷) - "anti-involution."

Here's what's actually happening:

China's decentralized system means hundreds of local governments compete to nurture "champion" companies. When solar panels or EVs show promise, suddenly every province supports their own players with subsidies, land grants, preferential policies.

The result? Overcapacity across sectors. Companies surviving not through superior products, but through government support and unsustainable margins.

The Economic Reality Behind "Anti-Involution"

Since 2024, the Chinese government has launched a systematic "anti-involution" campaign - primarily an economic strategy to combat deflation and restore profitability.

The Core Problem: In key sectors like electric vehicles (EVs), lithium batteries, and solar panels, low barriers to entry and local government subsidies led to massive expansion of production capacity. This resulted in too many companies competing for a limited market, triggering fierce price wars where companies sold below cost.

Government Measures: The "anti-involution" policies aim to phase out weaker players and allow market leaders to thrive:

• Amending pricing laws to prevent selling below cost

• Encouraging "industry self-discipline" to avoid vicious competition

• Facilitating the exit of "outdated and inefficient production capacities"

Potential Outcomes: If successful, these policies could lead to industry consolidation, recovering prices, and improved corporate profitability. Companies like BYD, CATL, and Anhui Conch Cement are positioned as potential beneficiaries due to their scale and market leadership.

What Western Companies Must Understand

Government Policies Drive Everything

Chinese competition isn't just individual companies - it's entire ecosystems backed by coordinated policy support. Understanding which policies drive investment in specific sectors helps predict where competition will intensify and where consolidation will create opportunities.

The Consolidation Window

"Fan Nei Juan" represents a massive shift. The same government that created overcapacity is now actively promoting consolidation. This creates a unique window where Western companies can:

• Partner with emerging winners before they dominate globally

• Leverage overcapacity for strategic advantage

• Identify which sectors are moving from "race to the bottom" to "survival of the fittest"

Beyond Price Competition

While breakthrough innovation exists, much Chinese competitive advantage comes from rapid iteration, manufacturing excellence, and scaling quickly in massive domestic markets. The "anti-involution" push may actually accelerate innovation as companies can no longer compete solely on price.

The Strategic Response: Timing Is Everything

Recently, we worked with a natural resource company facing Chinese competition. Instead of competing on price alone, we conducted comprehensive analysis of the entire Chinese value chain - understanding which players would survive consolidation and which represented partnership opportunities.

The insight? Chinese "involution" created strategic partnership opportunities worth billions per year, but only for companies that understood the timing of policy shifts.

How We Help Western Companies Navigate This Reality

Market Intelligence & Timing

• Deep analysis of "Fan Nei Juan" policies by sector

• Identification of consolidation winners vs. casualties

• Partnership opportunity mapping during industry transitions

Executive Search & Team Building

• Sourcing leaders who understand both Chinese involution dynamics and government policy shifts

• Building teams that can capitalize on consolidation rather than just compete with overcapacity

Strategic Positioning

• Helping companies shift from reactive competition to strategic collaboration

• Identifying the right time to partner vs. compete as industries consolidate

Moving Beyond the Oversimplified View

The companies thriving are those that understand:

• "Involution" created the overcapacity problem

• "Anti-involution" is creating the consolidation solution

• The window to leverage this transition is time-sensitive

• Partnership timing matters more than product superiority

Your Path Forward

The "anti-involution" campaign signals the most significant shift in Chinese business environment since market reforms began. It's not just about competing with Chinese companies anymore - it's about understanding which Chinese companies will survive consolidation and how to position accordingly.

Whether you're facing new Chinese competitors, evaluating partnership opportunities, or trying to understand how policy shifts affect your business, the key is moving from assumptions to real-time policy and market intelligence.

The Chinese market is complex, but the consolidation window creates unprecedented opportunities for Western companies who understand the shift from "involution" to "anti-involution."

Looking for Strategic Leadership in Chinese-Driven Markets?

Board Members & Advisors: Need experienced leaders who understand the nuances of Chinese market dynamics, policy shifts, and the consolidation opportunities ahead? We help identify board members and advisors with proven track records navigating Chinese-driven innovation and competition.

Future-Proofing Assessment: Is your leadership team prepared for the next wave of Chinese market evolution? We provide comprehensive assessments of board and leadership team readiness for Chinese-driven markets and innovation, identifying gaps and opportunities for strategic positioning.

Leadership Team Optimization: Building teams that can capitalize on the "anti-involution" transition requires leaders who understand both the competitive threats and partnership opportunities emerging from Chinese policy shifts.

What challenges are you facing with Chinese competition in your industry? Looking to future-proof your board and leadership team for Chinese-driven markets? I'd be interested to discuss how our market analysis and leadership assessment can inform your strategic positioning.