China tackles excess capacity and competition in the economy

In recent economic updates from China, Asian equities faced a mixed performance, with Malaysia and Pakistan outperforming while Hong Kong and Singapore underperformed. The National Reform & Development Commission (NDRC) addressed the current economic climate, particularly focusing on curbing excess capacity and addressing issues of 'involution,' defined as self-defeating competition. This announcement notably emphasizes the government's intent to create additional job opportunities through private enterprises while tackling extreme competition within E-Commerce sectors. The findings from the S&P purchasing managers' index (PMI) indicated a contraction in manufacturing activity, which may prompt the government to reinforce its support for struggling sectors. Simultaneously, health care stocks demonstrated strong performance with notable collaborations, including Hengrui Pharmaceuticals' partnership with GSK, suggesting a trend towards consolidation in the industry. Battery producer CATL shared a 34% increase in net income for the second quarter of 2025, despite challenges like overcapacity and declining battery prices. In turn, trade talks gained momentum as the U.S. announced a significant deal in cooperation with the EU while also extending its deadline for negotiations with China, pointing towards potential economic adjustments in the near future. In the backdrop of these developments, other sectors such as electric vehicles and gaming are also experiencing notable growth. Xpeng, an electric vehicle maker, reported a significant year-over-year increase of 229% in vehicle deliveries, while NetEase, in the gaming industry, is benefiting from renewed licensing terms with Microsoft/Blizzard. These trends highlight a complex interplay between varying sectors as they navigate the changing economic landscape amidst competitive pressures and governmental oversight. Analysts have pointed to a gradual return to sustainable growth for E-Commerce platforms like JD, Meituan, and Alibaba, Echoing this sentiment, these Internet companies have made commitments to halt disorderly competition, a direct response to the NDRC's interventions. However, JD finds itself in a precarious position as its growth has already begun to slow, and its margins are relatively low, raising concerns about its ability to maintain competitive subsidies without compromising profitability. Overall, China's economic strategies reflect a proactive approach to fostering resilience and sustainable development across various sectors in a changing global environment.