The latest Central Financial Commission meeting reiterated "anti-involution" policies, sparking market expectations for capacity reduction in photovoltaic and automotive sectors. This analysis compares the distinctive opportunities and challenges of current anti-involution measures with the 2015-17 supply-side reforms while examining potential macroeconomic and sectoral impacts.
1. Supply-side reforms achieved significant outcomes a decade ago The 2015-17 reforms targeted traditional manufacturing sectors like coal, steel, and electrolytic aluminum, effectively reducing overcapacity. Consequently, PPI rebounded and corporate profitability recovered. The weighted average PPI for affected industries surged from -10.5% in 2015 to a peak of 21.5% in March 2017, with rebar and thermal coal prices rising 112% and 85% respectively during this period. Profit margins climbed from 2.4% in 2015 to 6.6% by early 2017, while deleveraging progressed substantially. Nationally, PPI recovered from -5.9% to 7.8% between February 2015 and February 2017, and nominal GDP growth accelerated from 6.6% in Q4 2015 to 11.8% in Q1 2017.
2. Divergent demand environment and industrial structure characterize current anti-involution Unlike the previous supply-side reforms focused on upstream sectors, current anti-involution policies primarily address photovoltaics, automobiles, cement, and steel. While both initiatives cover approximately 30% of industrial output value, the current measures involve sectors accounting for 19% of employment, slightly below the 24% covered previously. Key differences include: - Higher industry concentration: Leading photovoltaic and automotive firms control 67% market share versus 36% for coal and 34% for steel in 2015 - Lower state-owned enterprise presence: Private enterprises constitute 66%-80% in anti-involution sectors versus 55%-65% during reforms - Predominantly mid-to-downstream industries with newer production facilities - Market-driven approach: Current policies emphasize industry self-regulation through legal and market mechanisms rather than administrative directives
3. Sectoral prospects and macroeconomic implications Capacity reduction appears more feasible in sectors with high concentration and weaker profitability. The silicon material segment in photovoltaics shows stronger motivation for mergers and acquisitions, while the automotive industry's rapid technological iteration may accelerate spontaneous consolidation. Industries undergoing prolonged restructuring (e.g., agriculture, pesticides, silicones) could experience accelerated capacity elimination.
Macroeconomic impacts may be more moderate than previous reforms due to differing demand-side conditions. Current policies primarily aim to stabilize demand amid persistent property market adjustments and rising trade barriers. Anti-involution's focus on midstream sectors may exert weaker PPI uplift compared to upstream-focused supply-side reforms. Similar to prior experience, these policies may temporarily suppress output in affected industries.
4. Long-term effectiveness hinges on sectoral prospects and demand policies Historical evidence suggests anti-involution measures achieve optimal results when complemented by demand stimulus. The 2015-17 reforms succeeded partly due to coordinated policies including monetary easing, tax reductions, and PSL-funded infrastructure investment. Industries with substantial long-term growth potential—particularly those benefiting from technological advancement like photovoltaics and electric vehicles—stand to gain most from current restructuring.
Risks include slower-than-expected capacity reduction and weaker domestic demand recovery. The effectiveness of industry self-regulation remains untested compared to previous administrative approaches.
The analysis draws on Huatai Securities' report "How Does Anti-Involution Differ from Supply-Side Reform?" published July 15, 2025.