Chinese authorities are taking fresh action to stop brutal pricing battles playing out across major industries. Officials say selling goods below cost is damaging business health and hurting the broader economy.
The National Development and Reform Commission and the State Administration for Market Regulation put out a joint statement Thursday night about what they’re calling disorderly price competition. The agencies warned that too much price warfare could lead to a situation where “bad money drives out good money.”
Price competition has its place in markets, but some Chinese industries have pushed things too far, regulators said. They’re ramping up cost investigations, tightening price monitoring, and going after companies that break the rules. Businesses that keep up illegal pricing after getting formal warnings could see additional penalties or face closer scrutiny.
The statement pushed companies to set prices fairly and legally based on what the market actually needs as per Bloomberg. Regulators pointed out that current rules already stop businesses from bidding below their costs when they’re competing for contracts and other procurement deals.
Food delivery giants agree while EV sector resists
Food delivery services saw some of the most intense price battles this year. Alibaba Group Holding Ltd., Meituan, and JD.com Inc. all went big on aggressive discounts and special offers to pull in customers. The State Administration for Market Regulation brought in executives from these three companies in August. They agreed to ease up on those practices.
As Cryptoplitan noted previously, the e-commerce price wars have hammered profit margins across the sector. Analysts are raising red flags about long-term sustainability.
The electric vehicle sector? That’s been a tougher nut to crack. Despite repeated calls to stop the deep discounting, EV manufacturers keep rolling out heavy promotions in their cutthroat market.
Chinese leaders have pledged to tackle what they call “involution”, basically destructive competition driven by way too much production capacity. It forces businesses into endless price cuts that deliver fewer and fewer returns. Late July saw the Communist Party’s Politburo commit to better managing overcapacity in key industries to fight deflation.
Recent numbers show the government’s campaign isn’t getting much traction.
In July, every single one of China’s top 20 car brands either kept their discounts the same, bumped them up, or made tiny reductions. Seven brands actually went deeper on discounts even after Beijing made that June appeal to avoid “rat-race competition,” China Auto Market data shows. Promotion levels last month beat the year-earlier figures.
The weak response shows just how hard it’ll be to control what’s happening in such a competitive space. Established players like BYD Co. and Tesla Inc. are dealing with challenges from new competitors like tech company Xiaomi Corp. Meanwhile, automakers including Nio Inc. and Xpeng Inc. keep launching new models to grab market share.
BYD maintains deep discounts despite scrutiny
Take BYD, China’s top-selling carmaker. Its major discounts in late May helped set off the government scrutiny in the first place. But the change was tiny. The average discount – that’s the gap between the final sale price and the suggested retail price – dropped just slightly to 7.5% in July from 7.9% in June.
Regulators have warned BYD and other automakers over and over about how unsustainable the ongoing price wars are. Companies don’t seem willing to back down though.
The fact that discounting continues despite regulatory warnings suggests companies figure they’ve got no choice but to compete on price. Weak consumer demand and excess manufacturing capacity leave them few options. The broader hit on renewable energy and technology sectors shows how far the pricing pressure has spread across Chinese industry.
