Opportunities From China’s Policy Shifts

Laura Wang, Morgan Stanley's Chief China Equity Strategist, discusses China's new economic policy, the "anti-involution" campaign, which aims to address excessive competition, deflationary pressures, and overcapacity. She explains that involution describes a cycle of companies eroding profits through price wars and overproduction. The policy, initiated in September 2024 and intensified in mid-2025, focuses on market-based consolidation to restore pricing power. Wang projects an increase in China's return on equity and earnings growth, with potential re-rating of valuations. She identifies the EV battery industry, steel and cement, and airlines as key investment opportunities benefiting from these efforts, noting that while the policy is domestically oriented, it will have global implications for supply chains. The success of the campaign hinges on further structural reforms and demand-side support.