China's Fight Against Involution: Where to Invest in Structural Reforms

Henry RiversSaturday, Jun 7, 2025 7:00 am ET
3min read

China's economy is at a crossroads. For decades, growth has relied on relentless competition, overcapacity, and short-term gains—a dynamic economists call “involution.” Now, the government is pushing structural reforms to combat inefficiencies and prioritize long-term competitiveness. For investors, this shift creates opportunities in sectors like education, healthcare, and technology, where policy support and innovation are converging.

The reforms aim to dismantle systemic inefficiencies, from overcrowded schools to opaque healthcare costs and tech reliance on foreign semiconductors. Success hinges on equitable access, productivity gains, and sustainability. Let's break down the sectors to watch—and how to profit.

Education: Opening Doors to Foreign Investment

China's education system has long been criticized for its “exam hell,” where students endure grueling competition for limited slots in elite universities. The government's response? Liberalize the sector to introduce foreign competition and modernize curricula.

In 2024, Beijing expanded pilot programs allowing foreign companies to invest in education, including vocational training and online platforms. The goal is to reduce overcompetition by diversifying opportunities and aligning education with workforce needs.


This shift favors companies offering skills training (e.g., coding bootcamps) and platforms like VIPKid (though now defunct, its model could resurface). Investors should look to New Oriental (EDU), which has pivoted to adult education, and emerging edtech firms partnering with foreign institutions.

Healthcare: A Rural-Urban Revolution

Healthcare in China suffers from stark disparities: urban hospitals are overcrowded, while rural areas lack basic facilities. The government's Rural Comprehensive Revitalization Plan (2024–2027) aims to reverse this by expanding telemedicine, improving drug access, and upgrading clinics.

The Healthy China 2030 initiative also focuses on universal coverage and cost containment. By 2025, the National Reimbursement Drug List will include more innovative medicines, reducing out-of-pocket expenses.

Investment opportunities lie in telemedicine platforms like Ping An Good Doctor (1833.HK) and rural healthcare infrastructure firms such as China Construction Bank's subsidiaries. Additionally, biotech companies developing generics (e.g., Hengrui Medicine (688333.CN)) could thrive as reimbursement systems streamline.

Technology: The Race for Self-Sufficiency

Involution in tech manifests as reliance on foreign semiconductors and software. Beijing's New Quality Productive Forces (NQPFs) initiative seeks to fix this by subsidizing AI, green computing, and domestic chip production.

Local governments like Shanghai's Lingang New Area are offering up to ¥10 million in subsidies for projects in advanced computing and green tech. The 2024 Green Industry Catalogue also prioritizes clean energy and carbon capture, opening doors for solar firms like JinkoSolar (JKS) and hydrogen tech startups.

Investors should focus on semiconductor makers (e.g., SMIC (0981.HK)) and AI leaders like Alibaba Cloud, which benefits from data center liberalization. However, U.S. export restrictions remain a risk—diversify into green tech for safer bets.

The Risks: Trade Wars and Implementation Gaps

Despite the optimism, hurdles loom. The U.S.-China trade war, now under “Trump 2.0,” has imposed 20% tariffs on Chinese goods, spurring retaliatory measures. This could disrupt supply chains and inflate costs for exporters.

Additionally, rural reforms face logistical challenges. Ensuring subsidies reach clinics in Inner Mongolia or Yunnan requires strong governance—a mixed bag given China's bureaucratic layers.

Investment Strategy: Play the Long Game

The structural reforms are a multi-year bet. Here's how to navigate:

  1. Equity Access Plays:
  2. Education: New Oriental (EDU) for adult education, foreign-partnered vocational schools.

  3. Healthcare: Ping An Good Doctor (1833.HK) for telemedicine, Hengrui Medicine (688333.CN) for generics.

  4. Productivity Gains:

  5. Tech: SMIC (0981.HK) for semiconductors, Alibaba Cloud for AI infrastructure.

  6. Sustainability Plays:

  7. Green Tech: JinkoSolar (JKS) for solar, BYD (002594.SZ) for EVs and battery tech.

  8. Avoid: Short-term “exam prep” companies or overexposed exporters to U.S. tariffs.

Conclusion: Reform or Retreat?

China's fight against involution isn't just about policy—it's a societal reset. Investors who align with reforms targeting equity, productivity, and sustainability stand to gain. The road is bumpy, but the stakes are high. As the government shifts from quantity to quality, these sectors could define the next decade of Chinese growth.

Final Call: Go long on rural healthcare infrastructure, green tech, and domestic semiconductors. Short-term volatility is inevitable, but the structural tailwinds are undeniable.

Note: Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.