China Communist Party magazine calls for crackdown on price wars

Yahoo

02-07-2025

HONG KONG (Reuters) -A prominent Chinese Communist Party publication called for a crackdown on forms of competition that fuel price wars and squeeze profits in various industries, criticising big firms and local governments for unfair practices.
In the most strongly-worded Communist Party warning yet on the risks of industrial overcapacity, the Qiushi article on Tuesday said the phenomenon brings "enormous waste of social resources," and unsustainable debt that could endanger long-term growth.
The article, written under a pseudonym, focused on "involutionary competition" in which it said firms and local governments invest vast amounts of capital to chase market share in an environment of limited demand, while failing to achieve revenue growth.
It singled out industries such as photovoltaics, lithium batteries, electric vehicles, and e-commerce platforms.
To cut costs, some companies compromise on product quality, Qiushi said, disincentivising innovation and investment in research and development and harming consumer interests as "bad money drives out good money." Other firms are using resources to expand capacity, while delaying payments to suppliers and contractors, squeezing the entire industrial chain.
E-commerce platforms compete on prices by using their advantageous position to transfer pressure on the merchants using them to get through to customers, Qiushi said.
The magazine also offered some rare criticism of local officials, accusing them of both "absence and overreach."
Officials should step in more as regulations have not kept up with the development of new industries and business models, it said. Bankruptcy mechanisms are also "imperfect," preventing curbs to excessive supply.
On the other hand, some local governments, focused on short-term growth, attract investment by "artificially creating policy havens" with preferential taxes, fees, subsidies and land use, as well as protectionist measures.
Many economists have warned Beijing for years that high levels of state-guided investment and subdued domestic demand - caused in part by a feeble social safety net and deep rural-urban inequalities - leave China overly dependent on exports for growth, and pose debt and deflation risks similar to what Japan experienced in the 1990s.
Qiushi did not mention deflation, but warned that China might suffer from "development model path dependence" and needed supply-side reforms that reduce excess industrial capacity and a strategy to expand domestic demand.
It warned, however, that this would take time.
"Rectifying 'involutionary' competition is a complex systematic engineering project that cannot be accomplished overnight or with a single decisive move," the magazine wrote.
(Writing by Marius ZahariaEditing by Shri Navaratnam)