China’s market regulator, SAMR, recently met with top executives from major industries. The goal was to address neijuan, a damaging cycle of price-cutting that reduces profits and stifles innovation.
Government Seeks to Control Excessive Competition
Vice Minister Meng Yang led the meeting, focusing on extreme market competition and its negative effects. According to the South China Morning Post, officials fear that constant price cuts will destabilize industries in the long run.
Executives from BAIC Group, Mercedes-Benz, Alibaba, JD.com, Trina Solar, JA Solar, and Longi Green Energy participated. However, major players—BYD, Geely, Tesla, and Chery—chose not to attend. Consequently, their absence raises concerns about the effectiveness of Beijing’s plan to curb price wars.
China’s Growing Price War Problem
Recently, neijuan has become a serious issue for China. It refers to a situation where companies invest large resources but see minimal returns. As a result, the solar and electric vehicle (EV) industries have been hit the hardest. Many firms engage in relentless price-cutting, making their businesses unsustainable.
To address this, China’s National Development and Reform Commission (NDRC) has made neijuan a top priority for 2025. Officials have called for the “comprehensive rectification of involutionary competition.” However, despite this announcement, concrete actions remain unclear.
Notably, Beijing first mentioned neijuan in a Politburo meeting in July. This marked an important acknowledgment at the highest level. Nevertheless, industry leaders remain skeptical, as the government has yet to introduce any clear policies.
Why BYD and Geely Skipped the Meeting
Interestingly, BYD and Geely—two of the biggest players in China’s auto price war—did not attend. Likewise, Tesla and Chery were also absent.
BYD, the world’s largest EV maker, has aggressively cut prices to maintain its dominance in China’s competitive market. Similarly, Geely has continuously reduced prices, making survival difficult for smaller automakers.
On the other hand, Mercedes-Benz and BAIC attended the meeting, but they have less influence over China’s domestic price wars. Because of this, BYD and Geely’s absence suggests they doubt the government’s ability to change market dynamics. If key competitors refuse to cooperate, Beijing’s intervention may be ineffective from the start.
Beijing’s Reluctance to Act
Although the Chinese government acknowledges the problem, it has hesitated to take direct action. According to a Think China report from August 2024, industries like cleantech have faced neijuan since at least 2022. However, instead of enforcing regulations, Beijing has relied on discussions.
Economist Gary Ng from Natixis explained the situation. He pointed out that the solar and EV industries struggle with overproduction, which worsens price wars. Meanwhile, in the internet sector, a few dominant companies control market pricing, forcing smaller sellers to lower their prices.
The Dangers of Price Wars
Currently, China’s auto industry faces what economists call a “race to the bottom.” In other words, companies continuously lower prices to undercut rivals, but this comes at the cost of profitability and innovation.
Larger automakers like BYD and Geely can afford these price cuts. However, smaller competitors will likely collapse. In the long run, this could lead to monopolies rather than healthy competition.
Furthermore, excessive price-cutting discourages companies from investing in new technologies. Since profits are shrinking, many firms hesitate to innovate, which could slow down the growth of China’s auto industry.
If the government intervenes, it will have to make difficult choices. Strict price controls could reduce competition, making the market less dynamic. On the other hand, allowing price wars to continue could destabilize industries and lead to economic downturns. Therefore, policymakers must find a middle ground to ensure fair competition without harming businesses.
So far, Beijing has taken a cautious approach by urging firms to regulate themselves. However, history has shown that companies rarely stop price wars voluntarily.
Will Beijing Take Action?
Despite growing concerns, there is little evidence that China will take strong action anytime soon. The recent meeting signals that the government recognizes the issue. However, without participation from BYD, Geely, and Tesla—the biggest price-cutting firms—there is little hope for immediate change.
For now, China’s auto industry remains locked in fierce competition. As a result, companies continue to cut prices, eroding their own profits. Whether the government will step in remains uncertain. Until then, automakers believe survival depends on aggressive pricing rather than regulatory intervention.