Involution In Services?

Is China Bringing Their Proven Growth Model To Haircuts?

I, and many others, have previously made the point that the Chinese growth model is increasingly driven by overinvesting in a sector to the point where it can’t bear any more, and then moving on to the next one.

An interesting new video from Trivium China sees this approach escaping the goods economy and coming to services.

The whole video is worth a watch, but the key points for me are

If this is truly the case, the implications will be interesting to watch. On one hand, a capacity build in the types of services mentioned in the video will not lead to a glut of exports in the same way as building overcapacity in auto or solar panel manufacturing has. On the other hand, though, bringing a glut of supply of services will drive their price down (involution) but will not fundamentally affect the domestic income imbalance in China — households employed in these sectors will likely see falling wages, which means they will not have increased income to drive increased spending which would drive increased consumer demand in the Chinese economy. The same old problems of an unbalanced Chinese economy reliant on dumping exports on the rest of the world will persist.

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