In today's China, the term "neijuan", often translated as "involution", refers to a state of increasingly intense internal competition where individuals or organizations expend more effort and resources just to maintain their position, often leading to inefficiency, burnout, and stagnation rather than meaningful progress.
From an economic perspective, "involution" can mean that the enterprises become trapped in homogeneous, low-price competition within a limited market, continuously pouring in resources without improving technology or profitability. This, in turn, drags down the entire industry's earning capacity. For example, in recent years, the photovoltaic (PV) industry has suffered from overcapacity, causing polysilicon prices to plummet. Leading companies responded by jointly signing a self-discipline pact to resist price wars. Similarly, although sales of new energy vehicles (NEVs) have grown, capacity expansion has been even more aggressive. Price wars have squeezed profit margins, pushing some automakers into massive losses. This kind of involution not only weakens the incentive for enterprise innovation but also creates ripple effects that suppress household income and consumer confidence, resulting in negative macroeconomic reactions.
As things stand, "anti-involution" has become a focus of both policy and the market in China, with its core aim being to break free from low-quality competition and reconstruct a logic of high-quality development.
At the policy level, "anti-involution" represents an upgraded and more complex form of supply-side reform, with a broader reach than previous efforts that focused mainly on upstream industries like steel and coal. It targets both emerging and traditional sectors such as PVs, automobiles, and machinery, involving more mid- and downstream segments and a lower share of state-owned enterprises, making market consolidation more difficult. To address this, the central government is pursuing a three-pronged strategy: short-term industry self-regulation and administrative intervention, medium-term promotion of mergers and the elimination of outdated capacity, and long-term construction of a unified national market to break down local protectionism and unblock factor flows. Efforts also include curbing local governments' excessive use of subsidies to spur blind industrial expansion and directing financial support toward technologically advanced firms rather than low-end producers.
Take the Shenzhen-based company Lofree as an example. Its pace of international expansion has been remarkable. In 2023, it officially launched on Amazon's U.S. and Japan platforms, and within just one year, it achieved monthly sales of USD 410,000, including USD 260,000 in the U.S. and USD 150,000 in Japan. By its second year overseas, in 2024, its international sales surpassed RMB 100 million. Rather than engaging in intense competition in saturated "red ocean" markets in China, Lofree opted to carve out a niche with differentiated products in the "blue ocean" internationally. Its chosen path of differentiation is through "fine manufacturing". While Chinese mechanical keyboard brands were trapped in a price war around RMB 100, Lofree broke into the premium overseas market with its focus on craftsmanship. Its products are centered on a retro typewriter aesthetic, and it has collaborated with brands like Starbucks to release co-branded keyboards. Using its self-developed low-profile switch technology, Lofree reimagined the office keyboard as a desktop art piece. This fusion of industrial design and functional innovation met the specific demand among white-collar consumers in the U.S., Europe, and Japan. With products priced at USD 150 to USD 200, the company generated over RMB 100 million in annual overseas revenue, successfully escaping the trap of involution in China.
What then, is "fine manufacturing"? Originally, there was no such policy or industrial concept in China. The term was coined by ANBOUND during its research on German industrial models, as an extension of the concept of "fine chemicals", with the aim of highlighting a potential future path for the development of China's manufacturing sector. Around 2011, ANBOUND's founder Kung Chan formally introduced the concept of "fine manufacturing". At the time, the world was still struggling to recover from the global financial crisis, and although China's manufacturing industry was already facing challenges, large-scale industrial relocation had not yet occurred.
It should be pointed out that "fine manufacturing" is distinct from the popular concepts of "Internet Plus" and "Industry 4.0". Researchers at ANBOUND have consistently maintained that while the internet, as a tool for improving efficiency, can change how industrial goods are manufactured, it does not change the nature of the goods themselves. As long as market demand for industrial products remains fundamentally unchanged, the manufacturing of these goods will continue to follow the inherent logic of the industry, progressing from rough to refined, from quantity to quality, and from products to equipment.
What exactly does fine manufacturing entail? What are its core elements? After in-depth research, Kung Chan summarized that it primarily consists of the following seven key dimensions:
1. Culture: Fine manufacturing is not about producing ordinary, mass-market industrial goods, as industrial aesthetics plays a crucial role in it. High-quality industrial products often carry aesthetic qualities that give them the feel of artworks, a defining trait shared by all fine manufacturing products. Take firearms, for example: those produced through fine manufacturing are often world-renowned models, crafted like pieces of art. In contrast, while Chinese-made firearms may be inexpensive, they tend to be roughly made and lack finesse.
2. Art: The artistic taste of the designer determines the direction of the design; only designs that are validated by the market can embody the qualities of fine manufacturing. Take the Hyundai Sonata, for example. The first generation was designed in Italy and stood out in the market. However, with each subsequent generation, the design lost its distinctiveness, not because of declining technical quality, but due to a drop in artistic vision. As a result, the product gradually lost its uniqueness and could no longer maintain a competitive position in the market.
3. Branding: The creation of a brand image through advertising is closely tied to products of fine manufacturing. The technical and artistic sense conveyed by brand advertising often determines the perceived level and status of a product. Therefore, branding and fine manufacturing are inseparable. Take Germany as an example: its industrial products not only offer excellent technical quality but also typically carry a strong, high-end brand image.
4. Quality: Quality is the foundational element of any product. A good product must have good quality. Fine manufacturing places even greater emphasis on the consistency and durability of that quality over time.
5. Consumer Segment: Products of fine manufacturing are often priced ten times higher than ordinary products, which means they target a different market segment. Typically, this corresponds to a consumer group with higher purchasing power.
6. Technology: Technical capabilities and R&D are among the fundamental pillars of fine manufacturing, with a special emphasis on the sustainability and longevity of the technology. Products of fine manufacturing cannot simply be created through technology imports; they must be the result of continuous in-house innovation and development. Only through this process can a product consistently maintain its market reputation and brand image. Even in a globally distributed production model, the core technologies must remain under full control, as exemplified by companies like Apple.
7. Education: Fine manufacturing relies heavily on the support of a strong educational environment. Only countries or regions with high-quality education systems can develop and sustain industries based on fine manufacturing. This is because artistic taste, technical quality, cultural depth, and the skill level of workers are all closely tied to the quality of education.
Hence, fine manufacturing goes far beyond the stage of industrial imitation. Products created through fine manufacturing can be stolen, but they can never be replicated. If one were to summarize the essence of fine manufacturing in a single sentence, it would be: "treat every product as if it were a luxury item".
Given the current state of China's manufacturing sector, if the country truly wants to break free from the cycle of involution, there is no choice but to pursue the path of fine manufacturing. If companies continue to compete on low-end products by stacking features, slashing prices, and churning out lookalike designs, the only outcomes are thinner margins, growing fatigue, and a shrinking future.
In the case of Lofree, rather than competing in the overcrowded, price-driven keyboard market in China, it carved out a space for itself by treating its products as works of art, blending technical precision with distinctive design to enter the premium consumer segment internationally. Despite higher price points, its keyboards remain in strong demand. This success stems from a consistent commitment to refinement, deep technical expertise, innovative design, and attention to quality. By creating a unique value proposition and steering clear of low-end price wars, Lofree achieved both premium positioning and sustained market appeal.
The global reputation of "Made in Germany" was built exactly this way. In China, there are frequent talks about industrial upgrading and overcoming technological bottlenecks, but at the most fundamental level, it starts with ensuring that businesses can operate profitably and sustainably, giving them the incentive to innovate. For this reason, addressing involution cannot rely solely on policy slogans, regulatory barriers, or vague calls for "internal circulation" or focus on the domestic market. The real engine of change lies with enterprises themselves. It requires laying a solid foundation through a unified national market for production factors, enabling thousands of companies, especially pioneers in fine manufacturing, to commit to a path that, while challenging, is the proper one. Only by developing genuine capabilities and world-class product quality can the Chinese industry truly break free from involution and move toward high-quality, sustainable growth.
Final analysis conclusion:
China's fundamental path to overcoming "involution" lies in fully advancing fine manufacturing.
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Yang Xite is a Research Fellow at ANBOUND, an independent think tank.
