China will step up efforts to crack down on "involution," or excessive and self-destructive competition, in the auto industry amid the recent resurgence of price wars.
The Ministry of Industry and Information Technology will tackle self-harming competition in the auto sector, promote industrial structure optimization and adjustment, strengthen product consistency inspections, cooperate with relevant departments to conduct anti-unfair competition enforcement, and take necessary measures to maintain a fair and orderly market environment, protect consumers' fundamental interests, and promote the high-quality development of the industry.
Involution refers to a situation where competition becomes counterproductive, leading to diminishing returns for all parties involved. In the case of China's auto industry, it has taken the form of aggressive price cutting that saps carmakers' earnings and technological progress.
Disorderly price wars between companies are a typical manifestation of "involutionary competition," with no winners and no future, a relevant official from the Ministry of Industry and Information Technology noted.
According to a statement by the China Association of Automobile Manufacturers on May 31, a certain automaker launched significant price cuts on May 23, with multiple peers following suit and triggering panic over a new round of price wars. Companies should compete fairly, not sell goods below cost, and avoid false advertising, the association said.
Some carmakers once again significantly cut new energy vehicle prices last month, triggering industry panic about a new round of price wars and creating potential risks of companies sacrificing quality for sales, noted Zhang Jinhua, chairman of the China Society of Automotive Engineers.
Price wars lead to declining profits throughout the upstream and downstream supply chain, said An Tiecheng, chairman of China Automotive Technology and Research Center. If sustained long-term, they will weaken research and development investment capabilities and create product quality risks, harming the industry's development interests, he added.
Involution has caused parts prices to fall by 10 percent to 15 percent a year, deteriorating upstream operations and making it difficult to avoid suppliers lowering quality requirements in certain aspects, An pointed out. Downstream dealers' operations have deteriorated, with some even shutting, leading to a decline in timeliness, convenience, and reliability of after-sales services, he said.
After some companies go bankrupt, suppliers no longer provide after-sales services, significantly increasing the probability of interruptions in intelligent function maintenance and updates, with products facing the risk of becoming unusable with time, An noted.
An proposed clearing innovation channels, guiding companies toward healthy competition, and steering them from low-price competition toward innovation-based one while blocking illegal industry behaviors and rectifying the market environment.
Possible administrative measures by the government include strengthening penalties for firms violating laws and regulations within the industry and further implementing various measures proposed by multiple ministries regarding comprehensive governance of involution, said Dong Yang, chairman of the China Automotive Power Battery Industry Innovation Alliance.
For example, inspections should focus on companies' issues with delaying payments to parts suppliers and requiring the implementation of government requirements to shorten payment periods, Dong noted, adding that this will have a big impact on carmakers' cash flow, limiting their ability to engage in price wars.
