Fact-Checking "Beijing Is Failing to Solve Its Involution Problem"

A Reality Check on China's Green Technology Sector

This article responds to Alicia García-Herrero's recent op-ed "Beijing Is Failing to Solve Its Involution Problem" published in The Wire China. While García-Herrero's piece addresses important questions about China's cleantech sector and overcapacity challenges,

David Fishman

argues that it contains significant factual errors that undermine its analytical framework.

The response that follows is necessarily detailed and data-heavy, as it systematically addresses what Mr. Fishman views as fundamental mischaracterizations of China's renewable energy market dynamics, infrastructure investment patterns, and policy responses.

I decided to present this analysis to contribute to the ongoing debate about China's role in global cleantech markets, and also to correct factual errors that frequently appear in Western analyses of Chinese industrial development, particularly regarding subsidy structures, demand trends, and the role of state coordination in overcapacity issues.

David Fishman

currently works for the Lantau Group, where he specializes in China's power sector. His work covers solar, wind, coal, nuclear, hydro, transmission, and power markets, with particular focus on renewable energy policies and market forecasting. Before joining Lantau Group, Fishman was Managing Co-Director of Shanghai-based Nicobar Group, a nuclear energy consultancy. He holds a joint MA in International Relations and Energy Policy from Johns Hopkins SAIS and Nanjing University, and is fluent in Mandarin Chinese.

He's also the founder of a newsletter

Crossing the River by Feeling the Stones

where he provides first-hand observations on Chinese rural areas and poverty alleviation efforts. His conversations with locals offer valuable grassroots perspectives on China's development, which I really enjoyed.

Thanks Mr.Fishman for allowing me to do some editing based on his original comments published on LinkedIn:https://www.linkedin.com/pulse/op-ed-correcting-factual-errors-chinas-cleantech-sector-david-fishman-czfdc/?trackingId=N2aV%2Fjw7S7S5a3gR1%2FaWYg%3D%3D
(Copyediting of the original text content performed by Fred with additional copyedit support from AI, with the author's knowledge and approval)

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A recent op-ed in The Wire China entitled "Beijing Is Failing to Solve Its Involution Problem" by Alicia García-Herrero, APAC Chief Economist at Natixis, attempts to diagnose China's green technology overcapacity crisis. The piece, which has been approvingly cited across social media by figures like Joerg Wuttke, Partner at DGA Albright Stonebridge Group, purports to explain how China's cleantech sector fell into "involution" and why Beijing's remedies will fail.

Unfortunately, the analysis is riddled with factual errors about China's power sector, leading to fundamentally flawed conclusions. While overcapacity and destructive competition are indeed real challenges in Chinese greentech, this piece misidentifies their causes, misunderstands current market dynamics, and misjudges Beijing's policy response.

Let me walk through the major problems systematically, providing necessary corrections backed by current data and market realities.

The Phantom "Demand Peak" That Never Was

The op-ed's problems begin early, with its foundational claim that "China's domestic demand for green tech has also peaked given the massive frontloading of installed capacity during the past few years, fueled by subsidies." This statement contains two major errors that undermine everything that follows.

First, Chinese demand for green technology hasn't peaked—it's accelerating at a breathtaking pace. Last year alone, China installed 277 GW of solar PV and 80 GW of wind capacity. To put this in perspective, China's solar installations in 2024 alone exceeded the entire cumulative installed solar capacity of the United States (121 GW). Even with new market reforms implemented on June 1, 2025, solar installations are on track to match last year's record, while wind capacity additions are actually expected to exceed 2024 levels. This isn't a market experiencing peak demand—it's one in the midst of explosive, sustained growth.

Second, the claim about subsidies is simply outdated. Chinese solar and wind farms haven't received direct subsidies since 2021. For the past several years, they've operated under a feed-in-tariff (FiT) system, which guarantees a fixed price regardless of market fluctuations. This is fundamentally different from a subsidy—it's a price stabilization mechanism. When market prices are high, the FiT can actually be lower than market rates, meaning developers earn less than they would in a pure market system. When market prices are low, the FiT provides a floor. This distinction matters because it shows these projects are largely market-driven, not subsidy-dependent.

The op-ed further compounds these errors by claiming that "plummeting external and domestic demand have forced Chinese tech companies to compete aggressively to gain market share by cutting prices." This characterization is wrong on both counts. Chinese solar panel exports totaled 236 GW in 2024, up 13% year-over-year. Wind turbine exports reached 5.2 GW, surging 42%.

Even in 2025, where the picture is more nuanced, the story isn't one of plummeting demand. While finished panel exports have declined 5% year-to-date, this has been more than offset by explosive growth in component exports—cells up 73% and wafers up 26%. This shift reflects countries like India building domestic assembly capabilities using Chinese components, not a collapse in demand. India alone accounted for 52% of the year-on-year increase in Chinese cell exports, as it rapidly builds panel assembly capacity that has reached 68 GW, more than double its 2024 installation rate.

The critical point here is that the supply-demand mismatch driving price competition isn't caused by weak demand—demand is robust and growing. It's caused by supply growth that has massively outpaced even these impressive demand increases.

Understanding "Involution": Getting the Causality Right

The op-ed fundamentally misunderstands what "involution" (内卷) means in the Chinese context. It claims involution "fosters the misallocation of resources into unprofitable sectors with overcompetition." This gets the causality completely backwards. Involution—or what I prefer to call destructive competition—is a symptom of oversupply, not its cause. It doesn't foster resource misallocation; rather, resource misallocation (if that's what we want to call it) creates the conditions for involution.

Involution manifests as razor-thin or negative margins, brutal price wars, and grueling work schedules as companies fight desperately for market share in an oversupplied market. It's the outcome, not the driver.

The op-ed also oversimplifies how this oversupply emerged, attributing it primarily to "government subsidies, especially at the local level." While subsidies certainly help manufacturers survive in an oversupplied market when normal economics would force capacity exits, they don't explain why manufacturers would invest in production capacity they knew couldn't be fully utilized. There had to be an expectation that this capacity would be needed.

Let me propose a more nuanced narrative. Picture yourself as a Chinese solar panel manufacturer in 2021. You've just seen authoritative global forecasts suggesting the world will need at least 650 GW of annual solar module production capacity by 2030 to meet climate goals. You look around and realize China currently has only 250-300 GW of capacity. The math is simple: there's room for massive expansion. If you expand aggressively now, you'll capture market share in this growing market. If you don't expand but your competitors do, you'll be left behind.

This is a perfectly rational calculation. The problem is that every manufacturer is making the same calculation simultaneously. It's classic game theory—individually rational decisions leading to collectively irrational outcomes. Think of it like hockey players all skating to where the puck is going to be. Smart individual strategy, but when everyone does it, you get a massive collision.

The result? China now has 750 GW of module production capacity in 2024, heading toward 1,000 GW by 2026—exceeding even the most optimistic 2030 global demand projections by 50%. Every few years, technological advances mean top-tier players need new production equipment to maintain competitiveness, selling their older equipment at discounts to whoever will buy it, often creating new competitors with second-rate but functional capacity.

I call this the "mule-and-carrot theory" (骡萝论)—like a mule chasing a carrot attached to its own head, the industry keeps expanding toward future demand that moves further away the more aggressively they chase it.

The bitter irony is that overcapacity wasn't necessarily caused by too much state intervention, but arguably by too little, too late. Earlier coordination to prevent this wasteful capacity race might have avoided the current crisis. China tried industry self-organization through price cartels, but these failed when individual companies couldn't resist undercutting agreed prices to gain market share.

The Grid Investment Myth

Perhaps the op-ed's most egregious error comes in its diagnosis of infrastructure problems. It claims "The heart of the problem in China's case is that it produces too much green technology which it cannot deploy due to the lack of capacity of the country's grid to put installed renewables to work. For years, Beijing's industrial policy has favored green manufacturing capacity—which has the benefit of earning export revenue—over green infrastructure, in particular improving the grid."

This statement is so wrong it's breathtaking. It's calling out China for failing to do something it has actually been doing at massive, unprecedented scale for decades.

Beijing's industrial policy has consistently prioritized grid transmission and distribution growth, with emphasis only intensifying alongside renewable expansion. State Grid alone invested over $72 billion in 2024 and announced plans to spend $89 billion in 2025 on grid upgrades. China Southern Power Grid is increasing capital spending for network upgrades by more than 50% through 2027.

These aren't just numbers on a spreadsheet. China has built the world's largest ultra-high-voltage DC and AC transmission networks—engineering marvels that transmit power thousands of kilometers from resource-rich western regions to coastal demand centers. Every year, China adds thousands of kilometers of medium- and low-voltage lines, integrating distributed renewables into the grid system. State Grid and Southern Grid regularly publish detailed reports of their infrastructure investments, making this one of the most transparent parts of the power sector.

The grid bottlenecks that do exist aren't caused by the grid side underperforming—they're caused by the generation side massively overperforming relative to even aggressive plans. When China set a target of 1,200 GW of combined wind and solar capacity by 2030 back in 2021, it was considered ambitious. The power sector hit that target in Q3 2024—six years early. Even China's powerful, well-resourced, and competent grid companies cannot compress nine years of planned infrastructure development into three.

This is a consistent pattern in the author's analysis—failing to correctly identify whether a supply-demand mismatch should be attributed more to the supply or demand side. Wind and solar curtailment spiked to crisis levels in 2016 not because grids were inadequate, but because of overbuilding of renewables in low-load areas. A construction slowdown was the primary solution then. Now curtailment is ticking up again (though nowhere near 2016 levels) for the same reason—generation expansion has dramatically exceeded even optimistic projections.

Similarly, the op-ed's complaint about insufficient energy storage misses the mark entirely. China currently has 95GW/222GWh of battery storage, not even counting substantial pumped hydro storage or compressed air systems. With renewables at approximately 18% of generation, this storage capacity appropriately matches current system needs. Battery operators need to make money too—building excessive storage before it's needed would simply create another supply-driven oversupply problem, exactly the kind of misallocation the author claims to oppose.

Misreading Beijing's Policy Response

The op-ed expresses concern that "The Chinese government's ultimate end is for Chinese companies to use their dominant position to hike prices, which will allow them to become profitable. In other words, an oligopolistic position in green tech industries is preferred rather than the current irrational competition."

This interpretation misunderstands both the goal and mechanism of current policies. Beijing isn't trying to create cartels or oligopolies for their own sake. Previous attempts at industry self-organization through voluntary price agreements failed spectacularly when companies couldn't resist undercutting each other. The current consolidation efforts aim to reduce the number of players making individually rational but collectively destructive decisions.

The establishment of a RMB 50 billion restructuring fund for the polysilicon sector, aimed at shutting inefficient plants that together account for over one million metric tons of annual production, isn't about creating market power—it's about removing the structural conditions that make destructive competition inevitable. When polysilicon prices briefly surged on news of the fund, and some solar glass manufacturers and auto firms pledged output reductions, this wasn't evidence of cartel formation but of market rationalization.

The goal is restoring conditions where companies can price products at financially sustainable levels without fear of losing market share to domestic competitors willing to endure longer losses. If consolidation succeeds in eliminating excess capacity and removing involution conditions, we return to a scenario where market forces allow players to raise prices to sustainable levels without worrying about predatory domestic competition. That's not a cartel—it's the restoration of normal market functioning.

The op-ed's concern that consolidation will stifle innovation by "sidelining smaller innovators" and "hollowing out the sector's long-term dynamism" is also misplaced. China's major cleantech players maintain massive R&D budgets and consistently push technological boundaries—they have to, just to stay ahead of domestic competition. The big players are the ones driving innovations in cell efficiency, larger turbine designs, and manufacturing process improvements. While smaller players can certainly innovate, consolidating an innovative smaller company with a larger player often provides the capital and scale needed to realize breakthrough technologies. The idea that market consolidation necessarily leads to innovation stagnation isn't supported by evidence from China's cleantech sector.

The Environmental Paradox No One Wants to Discuss

The article says "A pivot towards domestic green infrastructure would not only reduce the temptation to dump cheap products overseas, but also allow China to position itself as a credible partner in the global energy transition..."

Here's an uncomfortable truth the op-ed completely misses: Chinese oversupply and the resulting "involution" have been fantastic for global decarbonization. The author writes that "cutting capacity will do nothing to resolve the demand problem," still stuck on the false premise that there is a demand problem to solve.

In a world still burning massive amounts of fossil fuels, it's dubious whether there's any true "oversupply" of cleantech in the long run. China is already the most credible partner for cleantech consumers globally, offering quality products at prices that are literally loss-making for producers, partially backstopped by state support. For those prioritizing rapid global energy transition over protecting domestic manufacturers, China's approach delivers exactly what's needed. The entities viewing China as a "non-credible" partner aren't the consumers benefiting from cheap clean energy—they're the would-be producers hoping to manufacture their own panels, turbines, and batteries.

This creates a fundamental tension in how we evaluate China's cleantech policies. If you think the world can afford to decarbonize at the pace enabled by your domestic cleantech producers' pricing, then prioritize their definition of "credible partner" behavior. But if you think the urgency of climate change demands the fastest possible deployment of clean energy, then China's loss-making exports might be exactly what the world needs.

The author suggests that "a pivot toward domestic green infrastructure would not only reduce the temptation to dump cheap products overseas, but also allow China to position itself as a credible partner in the global energy transition." This reveals a fundamental misunderstanding. China is already conducting the largest pivot to domestic green infrastructure in human history. Most Chinese panels end up not in export markets but in domestic power plants—hundreds of gigawatts annually, installed at breakneck pace, straining both physical grid infrastructure and commercial market mechanisms to their limits.

The Recommendations That Already Exist

The op-ed concludes with policy recommendations that reveal how disconnected the analysis is from Chinese reality. It suggests China should "redirect its resources from building more solar panels to building the infrastructure that can actually deploy them. Expanding transmission lines, upgrading local grids, and investing in large-scale battery storage would create demand for renewable technology far more sustainably than cartel-style supply management."

This reads like recommending that fish should try swimming, or that birds might consider flying. China is already doing all of these things at unprecedented scale. The author seems to have a peculiar habit of recommending China do things it's already doing massively. Is this genuine ignorance of Chinese activities? Or perhaps knowledge that China is already doing these things, with hope to claim credit when they become more widely known?

The piece acknowledges that "infrastructure spending carries its own risks" and that "China's past reliance on credit-fueled construction led to excesses," but then argues this is still better than "endlessly subsidizing factories to outproduce one another." This creates a logical contradiction. How does the author think China pays for all this green infrastructure? The direct beneficiaries of subsidized manufacturing engaging in involution are precisely the developers of green infrastructure, who can now build projects at lower costs.

Even more puzzling is the failure to recognize that successful anti-involution campaigns will actually slow green infrastructure development. If Chinese manufacturers successfully consolidate, eliminate excess capacity, and raise prices to sustainable levels, this will increase costs for renewable energy developers worldwide. While necessary for manufacturer sustainability, let's not pretend it's good news for the pace of global renewable deployment.

Getting the Diagnosis Right

The op-ed's final paragraph contains one point of agreement: "The story of China's green transformation has always been about scale. But scale alone has reached its limits. The next chapter must be about balance: balancing supply with demand, manufacturing with deployment, and green manufacturing with green infrastructure."

Balance is indeed important, and restoring it is the goal. Unfortunately, the author has fundamentally misidentified the sources of imbalance, the current state of infrastructure development, the actual dynamics of supply and demand, and both the motivation and likely effects of policy remedies.

While overcapacity genuinely threatens Chinese greentech manufacturers' viability—and we do need them profitable and sustainable for the long term—understanding the true causes and dynamics is essential for evaluating policy responses. The problem isn't weak demand, which continues growing robustly both domestically and internationally. It's not inadequate infrastructure, where China is conducting history's largest buildout. And it's not lack of innovation, where Chinese companies consistently push technological boundaries.

The core issue is that fragmented decision-making by rational economic actors pursuing explosive future demand has created a classic collective action problem. Beijing's consolidation efforts represent an attempt to restore market rationality by reducing the number of decision-makers who can trigger these cascading oversupply dynamics. Whether these efforts succeed will determine not just the fate of Chinese manufacturers but also the pace and cost of the global energy transition.

Conclusion: The Cost of Superficial Analysis

García-Herrero's op-ed reads less like serious analysis of Chinese industrial dynamics and more like a position paper ghostwritten by a European solar manufacturer lobbyist. These are crucial topics that deserve rigorous examination, not superficial treatment based on outdated assumptions and demonstrable factual errors.

The good news, if we can call it that, is that Beijing's policymakers—the people who actually matter for these decisions—are unlikely to be distracted by such flawed external commentary.

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Source Links:

Domestic demand for Chinese solar panels:

https://www.eia.gov/todayinenergy/detail.php?id=65064

2025 export demand for Chinese panels, wafers, and cells:

https://ember-energy.org/latest-insights/china-solar-cell-exports-grow-73-in-2025/

Export demand growth for Chinese wind turbines:

https://www.yicaiglobal.com/star50news/2025_02_276798437118063411200

Forecast of export demand for Chinese wind turbines

https://www.woodmac.com/news/opinion/the-great-divide-between-chinese-scale-and-western-strongholds/

China meeting its 2030 targets 6 years early

https://www.iea.org/reports/renewables-2024/executive-summary

Global demand for solar PV module production

https://www.iea.org/reports/renewable-energy-market-update-june-2023/is-there-enough-global-wind-and-solar-pv-manufacturing-to-meet-net-zero-targets-in-2030

Expectations on Chinese PV module capacity growth

https://www.rystadenergy.com/news/china-s-solar-capacity-surges-expected-to-top-1-tw-by-2026

State Grid spending

2024: https://www.energyconnects.com/news/renewables/2025/january/china-is-ramping-up-grid-spending-after-green-power-supply-boom/

2025: https://www.reuters.com/business/energy/chinas-state-grid-outlays-record-887-bln-investment-2025-2025-01-15/

State Grid and Southern Grid value of grid investments 2010-2023

https://www.shmet.com/news/newsDetail-2-894706.html

More to read:

China's July Politburo Meeting: Transcript and Readout

Anti-involution vs. supply-side structural reform: What's different?