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Stop the price wars: China’s state media guns target cutthroat industrial competition SCMP

People’s Daily again rails against the scourge of neijuan plaguing sectors from EVs to batteries

China’s Communist Party mouthpiece has taken another shot at the unsustainable price wars dragging down industrial profits in the world’s second-biggest economy, urging firms to abandon the race to the bottom and refocus on quality.

In a front-page editorial on Sunday, People’s Daily raged against cutthroat neijuan tactics “infesting” various industries with excess capacity, including electric vehicles, photovoltaics and batteries.

Neijuan, also known as “involution”, refers to a self-defeating cycle of excessive competition.

“Solar module prices have tumbled to just 0.6 yuan per watt, prices have been slashed on over a hundred EV models while producers of energy storage equipment seek to underbid each other in the race for orders,” the editorial said.

“Disorderly price undercutting and homogeneous competition have infested many industries, distorting the market mechanism.

“It is a race to the bottom and will weaken the competitiveness of the entire industry.”

The editorial echoed earlier calls by both People’s Daily and other state-run outlets to stamp out neijuan, which is proving intractable as business profits plunge, leaving many manufacturers struggling to realise even razor-thin margins.

Amid persistent deflation and simmering trade tensions with the United States, industrial profits fell by 1.1 per cent year on year in China in the first five months, with a 9.1 per cent decline in May.

Profits for China’s car sector, one of the foundations of the country’s economy, were down 11.9 per cent during the January-May period.

The People’s Daily editorial highlighted the decline of the neijuan-riddled sector, saying average profit margins dropped to 4.3 per cent last year, with only four EV makers – BYD, Huawei-backed Seres, Li Auto and Leapmotor – making money in 2024.

“Resources are wasted on inefficient competition, which stifles innovation and leaves an imbalance in supply and demand. Neijuan directly affects wage levels, government tax revenues, investment confidence and the whole economy,” it said.

It also warned that neijuan took forms other than price wars, including companies that abused their dominance of the industrial chain to exploit partners upstream and downstream.

In addition, the editorial pointed to businesses that cut corners on quality and made copycat products in sectors that already had excess capacity, as well as local officials who made misguided efforts to woo investment through unsustainable tax breaks and subsidies.

This is the second time in a month that People’s Daily has taken aim at the vicious cycle of low price, low quality and ineffective, unrelenting competition.

The newspaper said at the end of May that regulators must act quickly and efficiently to stamp out price wars.

A month earlier, Beijing-based Economic Daily said in a commentary that neijuan remained prevalent, defining the phenomenon as “the harder you work, the less you gain”.

Observers said authorities needed to take tougher action to help ailing businesses escape the trap – action that could be spurred by the state media calls.

“Neijuan’s harm has been explained umpteen times but businesses are unable to escape it … It requires firmer state action,” said Tang Dajie, a senior researcher with the China Enterprise Institute think tank in Beijing.

Tang added that neijuan remained a big disincentive for tariff-hit exporters to pivot to the domestic market.

“Many more firms and investors are waiting to see how well and quickly Beijing can tame neijuan. It’s also a litmus test of the resolve and effectiveness of Beijing’s policies,” Tang said.

In his annual work report to the country’s legislature in March, Premier Li Qiang vowed to mount a “comprehensive crackdown on neijuan”. That followed similar directives from the top leadership at the annual central economic work conference in December.

In the past, authorities have promised to curb all neijuan excesses while also vowing to respect the market’s role in resource allocation and to create a unified, level national market, among others, to ensure “survival of the fittest”.

This shouldn’t come as a surprise for anyone paying attention to my posts.

I have an idea though: how about we raise the wages of the working people so they have the purchasing power to actually buy these products at a price that pay the workers well? Is this too much of a radical idea?