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China's Rivals Hurt by Domestic 'Bad Cholesterol'
10 Apr
Summary
- China's leading companies are global competitors, not state-owned relics.
- Domestic rivals, kept afloat by subsidies, harm China's best firms.
- Protectionism is less of a threat than internal market competition.
China's most competitive global companies, such as BYD and CATL, are increasingly driving innovation in electric vehicles and battery technology. These predominantly private, technology-driven enterprises represent China's 'good cholesterol,' successfully competing internationally despite growing external pressures like tariffs and supply chain disruptions.
However, a significant internal threat exists: an underclass of less productive domestic companies. These 'bad cholesterol' firms are kept viable through local government subsidies and support, which artificially sustain them. This phenomenon, known as involution or 'neijuan,' leads to diminishing returns and erodes the pricing power and profitability of China's top firms.
While policymakers aim to curb these subsidy practices and reduce overcapacity, political economy challenges persist. Allowing unproductive companies to fail risks exacerbating job market concerns amid rapid automation. Consequently, China's global champions are being undermined from within, facing a more damaging challenge from domestic market dynamics than from international protectionism.
