Middle school students messing with electric bikes, then messing with AI.

Xi Jinping rarely questions local officials, how significant will China's measures to address overcapacity and ineffective competition 'anti-involution' impact AI, new energy vehicles, and computing power industries? (Background: Huang Renxun: We all agree that 'those who do not use AI will be replaced', and appropriately opening the Chinese market can make the United States stronger) (Background Supplement: Is China anxious? The Service Trade Association started a high-level training course on 'stable coins and innovative development of cross-border e-commerce' in August) The central urban work conference held in mid-July in China originally focused on urban governance, but Xi Jinping, the Chinese president, unusually questioned local officials in public about the uniformity of industrial layout, saying, 'When we talk about projects, it is always a few: artificial intelligence, computing power, new energy vehicles. Shouldn't all provinces in the country develop industries in these directions?' Xi Jinping's stern words certainly caused a stir. The industrial direction in China ignited the 'anti-involution' atmosphere, allowing the outside world to glimpse the cost of China's economic structural adjustment. 'Involution' is a commonly used term in China, describing a situation where internal competition leads to a vicious cycle, leaving no one with a leading advantage. 'Anti-involution' refers to addressing this overlapping and ineffective investment. High-level signals have been frequent. This central urban work conference is the first held in ten years. (People's Daily) published Xi Jinping's spoken remarks in full, highlighting the high level of policy. In fact, the official measures to address 'involution' have been laid out for several months. The government work report in March was the first to include 'addressing involution-style competition' in the text, and in June, the Anti-Unfair Competition Law of the People's Republic of China was revised. In July, the Central Financial and Economic Commission mentioned again the need to govern disorderly competition and promote the exit of backward production capacity. The official connections are evident, and the intent to combat industrial development's involution is clear. The three major excesses: AI, electric vehicles, and computing power. The first to be named was artificial intelligence. Since the 'deep exploration' model became popular in early 2025, AI has been viewed by the authorities as the key to the competition between China and the United States. Apollo Global Management's chief economist, Slok, warned that the AI bubble might repeat the internet bubble of the 1990s, and the rising price-to-earnings ratios of the top ten companies in the S&P 500 deepened external concerns. Xi Jinping himself emphasized innovation and differentiation through official channels, warning against repetitive investments. New energy vehicles are similarly facing involution. Great Wall Motors chairman Wei Jianjun pointed out the widespread phenomenon of 'zero-kilometer second-hand cars' in China, where dealers are selling new cars as second-hand vehicles, with some car manufacturers tacitly allowing this to create a false impression of hot sales. The National Development and Reform Commission has listed this as a typical case and has conducted interviews for rectification. Business Insider's analysis believes that excessive competition has led to price wars, profit compression, and that overcapacity has instead dragged down overall valuation. The construction of computing power has also exposed issues of idleness. Multiple listed companies announced insufficient server deployment rates, with the Green and Low-Carbon Development Action Plan for Data Centers setting a hard target of 60% deployment rate by 2025, reflecting that there is still a large amount of idle capacity. Li Genguo, director of the Shanghai Supercomputing Center, publicly stated: 'The construction of data centers in various places is homogeneous, coupled with insufficient actual demand, leading to long-term idleness of some computing power.' Government fund overlapping investment. The high-level criticism behind this is the structural side effects caused by years of government-led investment models. In just the first half of 2025, 67% of funding in the primary market came from local state-owned enterprises, concentrated in semiconductors, AI, new energy, and biomedicine. Bloomberg reported that government-guided funds are still the main force in the market. Academic research has warned that these funds may exacerbate the homogeneity of high-tech investments between cities, forming low-level redundant constructions. Chinese economist Zhang Weiying bluntly stated: 'Government-led investment funds lack exit mechanisms, artificially extending the life cycle of zombie enterprises and distorting competitive order.' The anxiety of local officials regarding political achievements further amplifies this investment impulse. The recent bankruptcy of Nezha Motors has dragged down financial funds in several provinces, serving as a typical case. Anti-involution aims to prevent further deterioration of the domestic economy. When domestic demand cannot absorb production capacity, low-priced products flood overseas, impacting the international market. Su Yue, chief economist for the Economist Intelligence Unit in China, pointed out: 'Chinese decision-makers are concerned about capacity utilization, but trade partners are more focused on production growth.' The U.S. Secretary of the Treasury has also repeatedly expressed concerns about China's electric vehicle subsidies, leading to increased investigations into anti-subsidy and anti-dumping. A manufacturer in the Yangtze River Delta revealed to BBC that the company blindly expanded production during the pandemic, and now, with weak demand, 'losing a little' is just to maintain employee jobs. This statement reveals the practical challenges of 'anti-involution'; while compressing backward production capacity, it must also consider employment and social stability. Xi Jinping's questions directed at domestic industries mean that the authorities can no longer tolerate homogeneous industrial competition. However, it takes time from policy implementation to industrial changes, and the actual market performance will ultimately be the final score. We will see how far China's industrial structural adjustment can go.