At its headquarters in the eastern Chinese city of Wuxi, Autolink is locked in a relentless race to be the top producer of components that power artificial intelligence in electric vehicles.
On the fourth floor, machines mount thousands of parts onto circuit boards. The company has increased production lines for the components, which are known as domain controllers. Downstairs, it is doing its best to accelerate robotic assembly from 56 seconds to 40. It has developed its own software that monitors the process for defects.
Autolink has already poured RMB 1.6 billion (USD 237.5 million) into the business, backed by investors like Wuxi’s municipal government. It has yet to turn a profit, while it faces a growing challenge from bigger automakers aiming to develop in-house AI technology. chairman and CEO Yang Hongze told Nikkei Asia that his approach differs from peers in Germany or Japan that “ensure their own survival before pursuing new capabilities.”
“I don’t know if this is necessarily the right path, or the path Chinese companies should take,” Yang said. “I was actually swept along, because if I didn’t do it this way, others would. Ironically, I went from being swept along to becoming the fastest to adopt this model.”
The intense battle among Chinese companies has led to rapid advances in EVs, solar panels, and batteries. But it has come with a heavy side effect that China calls “involution”: a predicament in which cutthroat price competition leads to diminishing profit margins and a glut of unsold goods. Fixing the problem is becoming increasingly urgent as Chinese companies seek growth abroad, sparking global complaints that the country is exporting not only goods but also its structural issues.
From Europe to Southeast Asia, fears of job dislocation and a hollowing out of manufacturing capacity are growing. German Finance Minister Lars Klingbeil this month accused China of “not playing by the rules” of global trade, citing its “overcapacity, state subsidies, joint venture obligations” and calling for a firmer stance. The US is reportedly considering additional tariffs to counter Chinese overcapacity before President Xi Jinping visits in September.
“Factories are producing far more than Chinese consumers are buying,” Yardeni Research said in a note. “What China cannot sell at home is getting dumped overseas. China is exporting deflation.”
China’s worldwide trade surplus exceeded USD 1 trillion for the first time last year and is on track to do so again in 2026.
Official data reveals just how important international markets have become for corporate China. Overseas revenue at 3,775 publicly traded Chinese companies reached RMB 12.38 trillion (USD 1.8 trillion) last year, or a record 22.7% of total revenue, according to Xinhua. Leading the way were electric vehicle manufacturer BYD, electronics supplier Luxshare Precision Industry, and home appliance maker Midea Group.
The companies’ foreign revenue as a share of the total was up sharply from 2019, when more than 2,200 listed Chinese companies reported combined overseas sales of RMB 6.7 trillion (USD 994.6 billion), or about 10% of the total.
In the first half of 2026, exports of what China calls the “new three” products—solar cells, lithium-ion batteries, and electric cars—jumped 52% from a year earlier to USD 116 billion, largely driven by the need to offset anemic demand at home, according to a report by Gavekal Dragonomics.
Overseas sales at Ecovacs, a leading manufacturer of robot vacuum cleaners, grew 45% year-on-year in the first six months of 2026, accounting for nearly half its total revenue. Domestic sales grew just 2%.
Solar panel maker Trina Solar reported a 16% increase in overseas revenue, helping offset a 9% drop in domestic sales.
Brisk foreign shipments, however, have done little to improve margins. “Some of the weakest profit growth has come from the sectors that define the new China shock,” said Adam Wolfe, an emerging market economist at London-based Absolute Strategy Research, in a note. “They may be dominating global markets, but it’s not particularly profitable.”
The automotive sector, much of whose staggering growth now comes outside of the country, is a case in point. In the first half of 2026, Chinese EV manufacturers exported 2.3 million cars, nearly as many as the 2.5 million vehicles sold overseas in all of last year. Yet during the same period, total profit for Chinese automakers dropped 20% on the year to RMB 195 billion (USD 28.9 billion). Their profit margin shrank to just 3.8% from 8% in 2017.
Dai Yong, CFO at automotive giant Geely’s Hong Kong-listed arm, said the company generally makes between RMB 12,000–15,000 (USD 1,781.4–2,226.8) in profit per exported car. That far exceeds how much it makes on domestically sold cars, which can be less than RMB 3,000 (USD 445.4) for a “new energy vehicle,” a Chinese term for hybrid and electric cars. For the first six months of the year, the average price of a Geely car was RMB 111,584 (USD 16,564.8).
In a recent interview with Nikkei Asia, Dai cautioned that the fierce competition seen in China “will definitely exist overseas in the future as well because all Chinese companies are going global.”
There are already signs that cheaper goods from China are pulling local competitors into price wars. An official index tracking China’s export prices has fallen steadily from 2023, although it has rebounded since February as exports of AI-related goods took off.
Since 2024, each percentage point increase in Chinese exports to other countries is linked to a 0.5% decline in goods prices, according to calculations by Megan Peters from Goldman Sachs. On average, this has suppressed prices by 0.6% across major developed markets outside the US so far, she wrote in a July report.
In Brazil, now the biggest importer of Chinese vehicles, consumers on average paid BRL 152,100 (USD 29,569) for light vehicles in June, 3.5% less than the average price in 2025, according to a report from Bright Consulting.
The influx of Chinese vehicles is a “major factor” behind the price decline, as those brands forced established manufacturers to offer larger discounts and reposition some models, said Murilo Briganti, Bright’s COO. He expects prices will remain under pressure, particularly in the electric and plug-in hybrid segments where Chinese marques are expanding quickly.
For consumers, affordable prices are always welcome. But governments also face pressure to protect local industries and jobs. Brazil last month raised import tariffs on EVs and hybrids to the 35% ceiling, and it has phased out tariff exemptions for Chinese EV kit imports. “My view is that the government welcomes stronger competition and lower prices for consumers, but wants Chinese automakers to manufacture and invest locally, rather than serve Brazil mainly through imports,” Briganti told Nikkei Asia.
In Germany, a study by the German Economic Institute found that increased competition from China led to roughly 400,000 out of 520,000 total job losses in the country’s manufacturing sector from 2019 to 2025. Juergen Matthes, head of international economic policy at the institute, pointed to an estimated 40% real appreciation of the euro against the yuan and a “producer price shock.” He noted that by early 2026, producer prices had risen by more than 35% in Germany and the euro area compared with early 2020, while Chinese producer prices had hardly increased at all.
“The key point to understand is that one of the main reasons of the new China Shock is this producer price shock,” Matthes said. “As the yuan has not appreciated in reaction to this, its undervaluation and the massive subsidies distort competition immensely to the detriment of Germany’s industrial base.”
Amid talk of higher European tariffs to fight back, Chinese carmakers are racing to raise local production capacity. Geely, Chery, Leapmotor, and Dongfeng have all announced plans to make some models in European factories owned by Western and Japanese counterparts. BYD is seeking a similar arrangement, according to people close to the company.
Authorities in Beijing are watching closely.
Two years ago, China’s leaders launched an “anti-involution” campaign that ranged from summoning executives to pledge to avoid price wars to banning new industrial subsidies. Beijing ended tax rebates on solar panel exports this year, and carmakers like BYD have vowed to pay suppliers more quickly. Yet, local governments have continued to increase support for homegrown tech champions and remain reluctant to shutter idle capacity because of the imperative to protect employment and achieve growth targets.
Beijing has rejected accusations that it enables overcapacity as “overly simplistic.” But wary of a growing international backlash, Chinese officials are now warning companies against exporting price competition. “While Chinese enterprises currently face an unprecedented strategic opportunity to expand globally, a trend of ‘externalization of involution’ has emerged in certain sectors,” read an editorial in the People’s Daily in July.
“Some companies are extending low-end competitive strategies, characterized by product homogenization and price wars, into international markets. This not only squeezes their own profit margins but also risks triggering trade friction and damaging the overall image of ‘Made in China,'” the editorial said.
At the same time, while overseas production could ease some trade tensions, Beijing also appears wary of losing its own manufacturing base and technology. After blocking US tech giant Meta’s acquisition of Chinese AI startup Manus earlier this year, the State Council set up a framework that broadens the scope of what constitutes an overseas investment and imposes national security reviews for sensitive sectors.
The new rules “reflect a broader policy shift under which China increasingly views outbound investment not only as a means of capital deployment, but also as a potential channel for the transfer of strategic assets, sensitive technology, data, expertise, and talent in ways that could affect national security and other core state interests,” wrote Kenneth Zhou, a partner at Shanghai-based law firm JunHe.
“Similar to the US outbound investment controls, China has now also formally embraced outbound investment screening as an instrument of state strategy.”
Autolink, the vehicle AI component maker, is among those looking at foreign production. It aims to build a manufacturing and R&D base in Romania. Yang, the CEO, said he does not use the word chuhai, the Chinese term for “going global,” which he believes is a “one-way concept” of exports.
“The important point is that we must have the ability to serve Japan in Japan, Europe in Europe, the United States in the United States,” he said. “We must pursue both localization and globalization.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.
Note: RMB figures are converted to USD at rates of RMB 6.74 = USD 1 based on estimates as of September 1, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.