Thoughts on the Market: Opportunities From China’s Policy Shifts

Host: Laura Wang, Morgan Stanley Chief China Equity Strategist
Date: October 2, 2025

Episode Overview

In this episode, Laura Wang explores the significant policy shifts underway in China as the government launches a targeted initiative to address "involution"—an era of excessive, profit-eroding competition across key industries. Wang unpacks how these policy changes are designed to foster healthier competition, restore pricing power, and drive stronger, more sustainable long-term growth in the Chinese market. She also breaks down the projected economic impacts, the sectors best positioned to benefit, and the potential ripple effects for global investors.

Key Discussion Points and Insights

1. Understanding Involution in the Chinese Context

• Definition: Involution describes a cycle of excessive competition where companies cut prices and ramp up production, which ultimately erodes profits for everyone.

• Quote:

  “Involution describes a cycle of excessive competition. Think companies fighting for market share by slashing prices, ramping up production and eroding profits, often to the point where nobody wins.”
  — Laura Wang [00:37]

• This cycle has been driven by mounting deflationary pressure, falling prices, a real estate market slump, and overcapacity—especially in manufacturing—since 2021.

2. Policy Response: Anti Involution Campaign

• Initial Triggers:

  • Deflationary pressures
  • Housing market slump
  • Manufacturing overcapacity

• Policy Launch:

  • September 2024: Initial pivot to address these issues
  • Mid-2025: More targeted “anti involution” measures, emphasizing reduction in excessive competition and market-based consolidation.

• Goal: Restore profitability and pricing power by encouraging industry consolidation.

3. Impact Forecasts and Investment Outlook

• Return on Equity (ROE):

  • Projected to rise to 13.3% by 2030 (from 10% in May 2024 and 11.6% in July 2025).
  • Bullish scenario: Up to 16.3% with decisive reforms and demand-side stimulus.

• Earnings Growth Projections:

  • Base case: 7.6% growth in 2025
  • Up to 11.1% by 2027

• Valuation:

  • Expected normalization to 12–13x forward P/E, possibly higher with deeper reforms.

• Opportunities:

  • EV Battery Industry:
    • “Strong policy support, cutting edge technology and a market that's consolidating fast, meaning the days of low quality and excess capacity are fading.” [02:40]
  • Steel and Cement:
    • Industries with established state capacity controls, allowing for stabilized markets and steady gains.
  • Airlines:
    • Sector has strong regulatory coordination and no seat oversupply; reforms could lead to a turnaround.

4. Implications for Global Markets

• The Anti Involution policy has broad implications beyond China:
  • “Ripples will likely extend to global supply chains, especially in materials, chemicals and autos.” [03:22]
• Success of reforms may impact investment flows, pricing, and competitive dynamics in these linked sectors worldwide.

5. What Investors Should Watch

• Track sector-level reforms and industry consolidation.

• Prioritize companies with strong fundamentals and policy tailwinds.

• Stay focused on domestically oriented sectors poised for support and potential outperformance.

• Quote:

  “China's Anti Evolution campaign is more than a policy tweak. It's a recalibration of how the country balances growth, innovation and sustainability.”
  — Laura Wang [04:00]

6. Looking Ahead: Policy & Reform Drivers

• Upcoming Fifteenth Five Year Plan (2026–2030) expected to clarify tax, social welfare, and local incentives.
• Pace/success depends on structural reform, demand support, and careful digestion of industrial credit risk.

Notable Quotes & Memorable Moments

• On the Severity of Competition:

  “The government's anti evolution campaign is a direct response to this problem.” [01:04]

• On Sector Opportunities:

  “We believe the EV battery industry will benefit the most from the Chinese government’s anti evolution efforts.” [02:40]

• On Policy Significance:

  “China's Anti Evolution campaign is more than a policy tweak. It’s a recalibration of how the country balances growth, innovation and sustainability.” [04:00]

Important Timestamps

• 00:00 – 01:00: Introduction & the concept of involution
• 01:00 – 02:20: Policy response and anti involution campaign details
• 02:20 – 03:10: Economic projections and investment opportunities
• 03:10 – 04:00: Global implications and investor considerations
• 04:00 – 04:37: Looking ahead: structural reforms, advice for investors, episode wrap-up

Episode Tone

Laura Wang maintains a clear, measured, and analytical tone, directly aimed at investors seeking actionable insights on China’s evolving economic policies and their practical implications.

This summary omits sponsor messages, disclaimers, and non-content sections to focus on actionable content and analysis relevant to market participants and observers.