Zoho Chief Scientist Sridhar Vembu has cautioned against "neijuan" (involution), describing it as an extreme, predatory competition cycle fueled by over-investment that is destabilising China's private sector. He argues that China’s relentless push for exports, coupled with its intense work culture, is leading to long-term economic and demographic consequences.
“The Chinese private sector suffers from ‘neijuan’ — extreme predatory competition driven by and driving over-investment. Lacking domestic income to consume their production, they are driven to seek export markets just to keep their operations alive. This is unwise—the ‘produce and export at all costs’ and the ‘996’ culture simply mean ever sinking birth rates.”
Vembu’s remarks come at a time when China has officially acknowledged the economic risks posed by neijuan and signaled a strong response. According to the South China Morning Post, Premier Li Qiang vowed to launch a “comprehensive crackdown on neijuan” during his work report to the National People’s Congress (NPC) on Wednesday — marking the first time a Chinese premier has formally addressed the issue in an agenda-setting annual speech.
The term neijuan, or “involutionary competition,” describes a self-defeating cycle where companies invest ever-greater resources in an increasingly saturated market without generating proportional returns.
Drawing a parallel with Japan’s economic struggles in the 1980s and 90s, Vembu highlighted that what appeared as Japan’s global economic dominance was, in reality, a desperate battle among too many companies funded by cheap loans, competing for survival. “Japan suffered from this same problem in the 1980s and 90s. What appeared to the outside world as ‘Japanese brands everywhere’ really was about ‘too many companies, funded with cheap loans, desperately fighting it out in the global market.’ In one sense, Japan never really recovered. Their companies lost their drive as their workforce aged (decades of ultra-low birth rates do that to you) and then Korea/China took over from them. Japan achieved ‘karoshi’ — death due to overwork—on a civilizational scale.”
Vembu also pointed out that Silicon Valley is experiencing a similar crisis, particularly in sectors like SaaS and AI, where over-investment has led to too many companies chasing too few customers. Unlike in China and Japan, where state-backed loans fueled the investment boom, in the US, the cycle is driven by venture capital (VC) and private equity (PE).
“Over-investment leads to too many companies chasing too few customers. Marketing spending goes through the roof, and there is no real profit (you do get ‘profit when we don’t count the expenses we push to shareholders’ stuff).” he wrote on X.
Vembu linked the ongoing global trade wars to decades of imbalances in the world economy, arguing that the distortions created by debt-fueled globalization have reached a breaking point. “Globalization of the past 40 years has been driven by infinitely stretchable balance sheets at every level, but the imbalances have reached such an extreme that they can no longer be ignored. These trade wars didn’t happen out of the blue.”
When a user pointed out that India does not face China’s overproduction problem, Vembu responded that India is dealing with the opposite issue — serving as a market for China’s surplus goods. “India is the other side of the coin in this respect: we provide a market to the over-producing Chinese companies! I have proposed a 2-phase strategy to achieve better balance (and not just at the country level but at a district level within India).”
In a tweet on February 28, the Zoho founder outlined a two-phase strategy for India’s economic growth, drawing lessons from China’s industrial evolution.
Local Manufacturing of Household Goods – India must focus on producing essential household items domestically and establish small and mid-sized factories in every district. This would reduce dependence on imports and strengthen the self-sustaining domestic market.
Advancing in High-Tech Manufacturing – To move up the value chain, India must invest heavily in strategic industrial R&D across all technology sectors.
“China started with Phase 1 over 40 years ago and now has mastered Phase 2 in the past 10-15 years. Even if global markets are not so favorable to export-driven growth anymore, India’s domestic market can power our own growth and job creation. That is far more balanced growth anyway.”
Vembu stressed that India must learn from China’s industrial transformation but adapt its approach to local conditions, focusing on regional self-sufficiency and economic balance.