‘With low domestic consumption, companies must…’

He argues that China’s aggressive push for exports and intense work culture are causing economic and demographic problems

Zoho’s Sridhar Vembu has raised concerns over “neijuan” (involution), an extreme competition cycle that is destabilising China’s private sector. He argues that China’s aggressive push for exports and intense work culture are causing economic and demographic problems.

“The Chinese private sector suffers from neijuan—extreme predatory competition driven by over-investment. With low domestic consumption, companies must rely on exports to survive. This ‘produce and export at all costs’ mindset and the ‘996’ work culture (9 a.m. to 9 p.m., six days a week) are leading to falling birth rates,” Vembu said.

China has officially acknowledged the issue, with Premier Li Qiang announcing a crackdown on neijuan in a speech at the National People’s Congress. The term describes a self-defeating cycle where businesses invest more but see little return.

Vembu compared this to Japan’s economic struggles in the 1980s and 90s. He noted that while Japan seemed to dominate the global market, its companies were actually battling for survival, funded by cheap loans. Over time, Japan lost its economic drive as its workforce aged, and countries like Korea and China took over.

Vembu also sees a similar problem in Silicon Valley, particularly in SaaS and AI sectors, where too many companies chase too few customers, leading to high marketing costs and low profits. Unlike in China and Japan, where the state fueled investment, in the US, the cycle is driven by venture capital and private equity.

He linked global trade wars to economic imbalances, arguing that debt-driven globalisation has reached its limit.

For India, Vembu proposed a two-phase strategy: first, focus on local manufacturing of household goods to reduce dependence on imports; second, invest in high-tech industries to drive long-term growth. He believes India can learn from China’s success while ensuring balanced economic development.

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