China’s Corporate Squeeze: What Falling Markup Reveals About Economic Involution

This paper investigates the phenomenon of "involution" in the Chinese economy, which has been manifesting in recent years, squeezing corporate profits and hampering economic growth.We use the economic concept of markup as a primary analytical tool to measure the pricing power and profitability of Chinese firms. Our central finding is a sustained decline in corporate markup rates over the past decade, a trend that has accelerated sharply since 2019.This analysis demonstrates that there is no apparently collapsing demand, but rather a widespread "lower-price-for-volume" strategy driven by excessive supply-side competition. A growing number of firms are now operating at or near at-cost pricing, with profit margins compressed to their limits.This profitability pressure exhibits significant structural divergence. Traditional manufacturing and materials sectors are trapped in intense price wars, while high-tech industries show relatively greater resilience. By ownership, state-owned enterprises (SOEs), burdened by policy objectives, have seen a steeper decline in profitability than their more agile private-owned enterprise (POE) counterparts, although both are under significant pressure.This dynamic of "profitless growth" poses a substantial risk to China's long-term economic trajectory by eroding reinvestment capacity and weakening domestic demand. Internationally, these internal pressures are also being exported through aggressive pricing, fueling trade tensions. We conclude that the core challenge for Chinese policymakers has shifted from pursuing growth at all costs to stabilizing profits and fostering a healthier competitive environment. This transition is critical for achieving a sustainable, quality-driven economic model.