China's Anti-Involution Playbook: Navigating Price Wars to Seize Consolidation Gains

As China's economy grapples with overcapacity and cutthroat price competition, Beijing's “anti-involution” crackdown has become a strategic lever to reshape industries like solar, EVs, steel, and batteries. This isn't just about curbing excess supply—it's about engineering a new era of winners and losers through consolidation, technological prowess, and state-backed dominance. For investors, the question is clear: Which sectors and firms will thrive as the dust settles?

The Price War Paradox: Overcapacity Meets Policy Enforcement

China's industrial policy has long oscillated between growth-at-all-costs and structural reform. The current anti-involution campaign—elevated to a national strategy—targets sectors where price wars have eroded margins and stifled innovation. Unlike the 2015–2018 supply-side reforms, which relied heavily on subsidies and state-owned enterprises (SOEs), today's measures emphasize private-sector leadership and technology-driven differentiation.

Take the solar industry, where module production capacity now exceeds 1,156 GW against global demand of just 584 GW. Beijing's response? Revise bidding systems to prioritize quality over price, phase out outdated factories, and push firms like LONGi Green Energy and Trina Solar to innovate in advanced technologies like TOPCon and perovskite.

EVs and Batteries: From Subsidies to Global Supremacy

The EV sector offers a stark contrast between past and present strategies. In 2015–2018, Beijing relied on direct subsidies, joint venture rules, and localized supply chains to build domestic champions like BYD. Today, the focus has shifted to ZEV mandates, global export dominance, and technology leadership.

State-backed firms like CATL (300750.SZ) now dominate global battery markets, leveraging economies of scale and government-backed R&D. Despite trade tensions—such as EU anti-dumping tariffs—the sector's resilience is evident: CATL's 2023 revenue surged 53% to $44 billion, while its advanced “Freevoy” batteries for extended-range EVs are winning contracts with global automakers.

Steel: The Stubborn Overcapacity Crisis

Steel remains a poster child for China's industrial overcapacity dilemma. Despite a 10% output cut mandate by 2025, production fell just 9.2% year-on-year in June . Output fell just 9.2% year-on-year in June 2025, while exports hit a record 30.7 million tons in Q2. The paradox? Weak domestic demand (rebar consumption down 22.8% since 2021) forces mills to flood global markets, triggering trade wars.

Yet consolidation is underway: Baowu Steel (600019.SH), the state-backed giant, is swallowing smaller rivals, while private firms face shuttering. For investors, Baowu's low-cost, vertically integrated model offers a safer bet than smaller players.

Why This Time is Different: Private Firms Lead, Tech Defines Winners

The 2015–2018 reforms were SOE-centric, fueled by subsidies and opaque market rules. Today's anti-involution push is private-sector battleground, where firms must innovate or perish. Key differences:
- Tech Over Scale: Firms like CATL and LONGi thrive not on subsidies but on R&D and proprietary tech.
- Global vs. Domestic Focus: Exports and international partnerships (e.g., CATL's European Gigafactories) are now critical.
- Market Discipline: Beijing's new tools—dynamic capacity controls, revised bidding rules—force firms to compete on quality, not price.

Investment Strategy: Target Tech Leaders and Consolidation Plays

The playbook for investors is clear:

1. Back Tech Leaders with Global Reach:
2. CATL (300750.SZ): Dominates EV batteries and ESS markets; benefits from ZEV mandates and R&D scale.
3. Trina Solar (688518.SH): Leader in advanced solar panels; poised to gain market share as low-cost producers exit.

Historical backtests show that technical patterns like the rectangle had minimal impact on stock performance, with maximum returns of just 0.16% and low consistency, underscoring the need to focus on fundamentals.

1. Bet on Consolidation Winners:

2. Baowu Steel (600019.SH): State-backed consolidation engine; low P/B ratio offers upside as smaller rivals fail.

3. Avoid Overexposure to Domestic Demand:

4. Firms reliant on China's weak real estate sector (e.g., rebar producers) face prolonged headwinds.

Conclusion: Act Before the Valuation Reset

Beijing's anti-involution campaign isn't just about pruning overcapacity—it's about rebuilding industries around global competitiveness and technological leadership. For investors, the window to position in firms like CATL, LONGi, and Baowu is narrowing. As price wars end and consolidation accelerates, the next phase of China's industrial evolution will favor those who bet early on the survivors.

The message is clear: Ride the consolidation wave—or risk being crushed by it.