| It’s been more than a year since Beijing launched its anti-involution campaign to stop industries sinking into destructive price wars.
It hasn’t worked.
Now, regulators are changing tack. Rather than regulating what manufacturers charge, they are going after the root of the problem — tackling the accounting, taxation, and supply chain payment systems that allow firms to keep prices artificially low.
The clearest case study of this new approach is in autos, with similar measures rolling out across solar and batteries, and a template that could spread to other manufacturing sectors.
There are three levers:
1. Accounting. Selling below cost is already illegal in China, but firms have found creative ways around it.
Common tricks include leaving discounts out of revenue figures or omitting costs like shipping and warranties.
New industry accounting standards set a common method for calculating vehicle production costs, which makes it much easier for regulators to identify below-cost sales.
2. Payment terms. Big automakers have long eased their own cash flow pressures by delaying payment to suppliers.
But now, under regulatory pressure, big auto players have pledged to cut payment terms to 60 days, from an industry average of around 170.
Regulators have also stepped up enforcement and set a 30-day payment target for small and medium-sized suppliers.
3. Tax breaks. The finance ministry will reduce the VAT export rebate for new energy vehicles from 13% to 9%, effective April 2027. Industry insiders expect it to eventually be phased out entirely.
The rebate has let automakers price aggressively overseas, effectively exporting China’s price wars. Cutting it will wipe out the thin margins on many mass-market models, forcing exporters to raise prices.
Taken together, this new anti-involution toolkit attempts to raise production costs and force manufacturers to restore margins through higher prices.
That will change who can afford to compete on price, and how China’s export competitiveness evolves in the coming years.
The big question is enforcement.
If regulators follow through, these measures could reshape margins and cash flow across key parts of China’s manufacturing sector.
If firms keep finding loopholes, Beijing will have added one more layer of toothless regulation to a campaign that has so far failed to deliver.
Want the full picture? Subscribers to our Trivium Markets service can read the full note here, which walks through each of the new measures and explains what investors should watch next.
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Cosimo Ries, Head of Clean Energy and EV Research
What you missed
U.S.-China
The US Department of Homeland Security added three Chinese genomics firms — BGI Genomics, MGI Tech, and BGI Group — to the Uyghur Forced Labor Prevention Act (UFLPA) entity list.
The commerce ministry (MofCom) condemned the listings as having “no factual basis” and vowed to “take necessary measures” in response.
Foreign affairs
At an informal meeting of EU trade ministers in Dublin, EU Trade Commissioner Maroš Šefčovič signaled that Chinese plastics could be the next target for import restrictions.
The recent agreement to limit Chinese hybrid vehicle imports doesn’t mean Brussels is finished — as Šefčovič said following that agreement, “It’s a crucial first step, but only a first step in the process of rebalancing.”
North Korean supreme leader Kim Jong Un paid a surprise one-day visit to the Chinese city of Dandong via the New Yalu River Bridge which opened earlier this month.
The recent flurry of meetings between senior Chinese and DPRK officials and the opening of the new bridge suggest a major effort by both sides to reinvigorate ties.
Econ and finance
Nominal per capita household income — which doesn’t adjust for inflation — grew 5.3% y/y over the first three quarters of this year, up from 5.1% in 2025.
But in real terms — which account for the loss of purchasing power as consumer prices rise — incomes grew just 4.4% y/y, down from 5.2% last year and the slowest pace on record outside the pandemic years.
Business environment
MofCom released draft provisions allowing it to investigate and sanction foreign entities suspected of infringing Chinese trade secrets.
Under the proposed rules, MofCom could restrict or prohibit trade and investment involving sanctioned entities, bar associated personnel from entering China, or impose fines.
Our Quick Take examines the draft’s ambiguities, enforcement mechanisms, and implications for foreign businesses.
Tech
Top diplomat Wang Yi released China’s ten-point Position on Strengthening Outer Space Governance at the Global Governance Forum in Xiong’an.
The new position paper calls for states to regulate commercial space firms so they “avoid intervention in the armed conflicts and internal affairs of other States in an unlawful way.”
Beijing is likely thinking of Taiwan, which is currently courting Starlink as a possible backup communications system in case a conflict with China results in disrupted subsea communications.
The State Council General Office released guidelines on building an “employment-friendly” AI development model.
The measures focus on creating jobs in new AI industries, building out AI retraining programs, and providing transition support for displaced workers.
AI deployments that could cause major job losses (think robotaxis) must undergo an employment risk assessment as part of their review.
Politics
The recently concluded Fifth Plenum passed over central bank (PBoC) Deputy Governor and foreign-exchange chief Zhu Hexin when promoting alternate Central Committee members.
Based on votes they received at the 2022 Party Congress, Zhu ranked ahead of three officials who were promoted, making his omission a conspicuous departure from the rules.
The snub comes on the heels of investigations into former securities regulator Fang Xinghai and former Chongqing mayor Huang Qifan, both prominent financial technocrats.
As always, it was a busy week in China.
Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.