Chinese regulators unveil measures to rein in price wars
The regulators will step up cost investigations, price supervision and enforcement actions against rule breakers
[BEIJING] China’s top economic planning agency and market regulator have unveiled new measures aimed at curbing disorderly price competition, warning that excessive price wars and below-cost bidding are undermining industry development and ultimately the country’s economic growth.
Price competition is an important market mechanism, however some industries in China have shown signs of disorderly competition, which may result in “bad money driving out good money,” according to a joint statement issued by the National Development and Reform Commission and the State Administration for Market Regulation (SAMR) on Thursday (Oct 9) night.
To address the issue, the regulators will step up cost investigations, price supervision and enforcement actions against rule breakers, according to the notice. Companies which are found to persist in illegal pricing after formal warnings could face further scrutiny or penalties.
Companies, especially in sectors with prominent pricing issues, must price goods and services “fairly and lawfully” in line with market supply and demand, the regulators said, reiterating that the current rules prohibit companies to bid below cost in tenders and other procurement processes.
Alibaba Group Holding, Meituan and JD.com have been engaged in China’s most visible price war this year, as each ramped up aggressive discounts and perks to entice consumers to their food delivery services.
The trio vowed in August to curtail those practices, after being summoned by the SAMR. Elsewhere, China’s electric vehicle makers have resisted the government’s call to end similar measures and discounts in their hypercompetitive market.
China’s top leadership has pledged to “break involution,” a term referring to a destructive state of intense competition sparked by excess capacity that forces people to overwork despite diminishing returns.
In late July, the Communist Party’s decision-making Politburo vowed to ramp up its management of overcapacity in key industries in a bid to rein in one major cause of the country’s deflation.
From food delivery to EV manufacturing, the price wars in the country’s various industries have added to deflationary pressures in the world’s second-largest economy, prompting the government to try to rein in overcapacity and raising the prospect of further economic stimulus being required. It has also created tension with trading partners as Chinese producers look to export more of their low-cost goods. BLOOMBERG
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