Addressing Herd Behavior and Fad-Chasing in Chinese Industries
China has taken a significant step towards addressing the issue of “herd behavior” and fad-chasing among its firms, particularly in emerging sectors such as electric vehicles (EVs), batteries, and solar energy. On August 1, the state planner announced a crackdown on this trend, aiming to prevent the excessive influx of capital into hot industries. The move is intended to curb the chaotic competition that has led to price wars and overcapacity, which are now major concerns for the industry.
This phenomenon, often referred to as “neijuan” or “involution,” has become a growing liability for Chinese companies. The new regulations seek to enforce investment discipline and prevent the boom-bust cycles that have plagued various sectors. While innovation is still encouraged, the focus is shifting towards sustainable growth and high-quality development, where standards and sustainability take precedence over speed.
The shift is essential given the current challenges faced by industries like EVs and solar, which are struggling with excess capacity and collapsing margins. Beijing is steering away from brute-force growth, emphasizing instead a more balanced approach that prioritizes long-term stability and quality. This strategic reset is not a retreat inward but a calculated move that will reshape how Chinese capital flows globally, especially in Southeast Asia.
A Strategic Reset for Global Expansion
By cooling speculative excess at home, China is preparing its firms to expand abroad more selectively and sustainably. The impact of this policy change will be most felt in Southeast Asia, where Chinese investments have surged in recent years. The “herd behavior” curbs are likely to slow erratic capital flows into the region, promoting longer-term industrial partnerships instead.
One of the key consequences of this domestic shift is a more disciplined home market pushing firms into Southeast Asia’s manufacturing base in a more calculated way. For example, the EV industry has seen Chinese carmakers turn to Southeast Asia, particularly Thailand, to sustain growth. Over $3 billion has flowed into Thai EV factories in recent years, helping Chinese brands capture more than 70% of the Thai EV market.
However, this wave has also echoed China’s chaotic domestic scene, with discount wars and struggling smaller entrants. The new policy will favor stronger players with long-term strategies, such as BYD, which is expanding with clear intent in Thailand and aligning with local development plans. This results in fewer hopefuls rushing in and more focused bets on stability and quality.
Cooling Hot-Money Flows and Shaping Regional Investment
The crackdown on speculation is also cooling the hot-money flows that have previously unsettled regional markets. This is not a new approach; in 2017, China cracked down on “irrational” overseas acquisitions, redirecting capital towards strategic sectors such as infrastructure and manufacturing. The same principle is being applied today, with the herd investment curbs sending a clear message: no more chasing fads, either at home or abroad.
For Southeast Asia, this means a more measured inflow of Chinese capital. Instead of unpredictable surges into property or tech start-ups, we could see more deliberate moves into manufacturing, supply chains, and infrastructure. Chinese companies are proving agile in adjusting to local dynamics, suggesting their investment footprint in Southeast Asia will become more strategic and less speculative.
Deepening Industrial Ties and Strategic Partnerships
Beyond the immediate effects, China’s policy reset could deepen its industrial ties with Southeast Asian countries. By discouraging redundancy at home, Beijing is nudging its strongest firms to seek growth abroad, especially in Southeast Asia. This is already evident in the increasingly integrated manufacturing network between the two regions.
In Indonesia, Chinese firms now control around 75% of nickel refining capacity, a process vital for EV batteries. This dominance involves smelters, tech transfer, and long-term partnerships that support Indonesia’s industrial ambitions. What’s changing now is China’s approach: future expansion will be more aligned with local priorities, more regulated, and more enduring.
Chinese firms are more likely to form joint ventures, share technology, and invest in long-term capacity, benefiting regional countries by providing infrastructure, financing, and know-how while avoiding the pitfalls of saturation at home.
A New Model for Sustainable Growth
With bilateral trade nearing $1 trillion, China’s economic future is increasingly tied to Southeast Asia. The new discipline is about protecting that stake, ensuring outbound investments are resilient rather than reckless. At the same time, China’s pivot is forcing a regional rethink, as other partners respond to increased competition.
Southeast Asian nations are planning joint strategies on automobile production and sales to counter China’s rapid gains. With Chinese companies operating under a mandate for quality and discipline, host nations can expect more stable engagement. Venture capital may shift towards sectors such as semiconductors or AI with real regional relevance.
A new model with less froth and more substance is emerging. By tightening controls at home, China is also tightening its grip abroad—not through floods of easy money but through focused investment that could shape Southeast Asia’s development trajectory for years.
