Every hot review | Multiple industries need to break through a single path in order to reduce overcapacity and prevent internal competition
Commentary by 胥帅
Recently, multiple manufacturing industries in China have launched anti-internalization measures. The top-tier solar glass companies have announced a collective reduction of 30% in production from July onwards to alleviate the "internalized" competition in the industry. The China Cement Association has released an opinion on further promoting the development of the cement industry, emphasizing optimization of the industrial structure. Some steel factories have also received notifications to reduce production and adjust their operations. These measures have quickly transmitted to the market: On July 3rd, the main contracts for products such as polysilicon, coke, glass, and iron ore all rose sharply on the domestic futures market. The A-share market has seen outstanding performance from the steel industry and solar equipment sector, boosting market sentiment.
At first glance, these commercial decisions appear independent, but in reality, they are a collective response by the business community to the national anti-internalization strategy – during periods of deep industrial adjustment, the key to long-term development is to "survive." For example, the solar industry's past woes were due to excessive competition driven by low costs. Companies competed to grab market share by expanding production, only to end up in a low-profit equilibrium with declining marginal returns. Local governments, seeking to boost their performance indicators, offered favorable policies to attract investment and expand businesses, further exacerbating internalization. This phenomenon is fundamentally consistent with the "prisoner's dilemma" revealed by economic theory: when companies blindly expand production to compete for market share, they will ultimately fall into a vicious cycle of competition.
Before enterprises take self-initiated measures to reduce production, the government has already implemented institutional constraints to curb the "government-enterprise" expansionary impulse. The recently released Guidance on National Unified Big Market Construction (Trial) explicitly prohibits local governments from building "policy ditches" and eliminating internalization incentives at their roots. Enterprise-led reduction in production aims to break this low-efficiency equilibrium, but caution is needed: this cooperative reduction in production forms a fragile profit uplift scenario. The "prisoner's dilemma" warns that once the market warms up, enterprises may again fall prey to expansionary impulses.
Unlike the supply-side structural reforms of 2015, this round of anti-internalization is centered on promoting national unified big markets and emphasizes orderly exit of outdated capacity and regulation of local recruitment. While promoting factor mobility, it also constrains low-level production repetition. The essential difference lies in that "anti-internalization" is not simply compressing production but driving the industry to transform from "survival-type adjustment" to "development-type reconstruction."
It's worth noting that some industries are exploring new paths while reducing production. For example, leading solar companies have reduced their production while increasing R&D investment, resulting in continuous improvements in photovoltaic energy conversion efficiency; the lithium-ion battery industry has expanded overall capacity, but high-pressure dense lithium supplies are in short supply, driving fast applications of iron-based quick-charging technologies such as Ningde Era's God's Archer and Beehive Energy's Short Sword batteries. These cases demonstrate that companies' competition is shifting from price wars to value competition – breaking free from reliance on scale expansion and low-price competition, focusing on strategic innovation, and building core competitiveness to enter the high-level competition stage.
In conclusion, reducing production is a short-term strategy to address internalization, but only by driving industry upgrading through technological innovation and breaking down institutional barriers with national unified big markets can industries truly escape the "prisoner's dilemma" and achieve high-quality development.