Every once in a while the Chinese government issues pronunciamentos to reprove its mega-managed markets for being too much like markets and lacking sufficient “socialist characteristics” (“China Communist Party magazine calls for crackdown on price wars,” Reuters, July 2, 2025).
The CCP says that price wars and “squeezing profits” are bad; a species of unfair practice. However, the latest remonstration seem to be aimed not only against private firms (or what counts as private firms in China) but also against some of the heavily interventionist policies of local governments.
Public messaging against price wars has increased in recent weeks in China, with top leaders pledging on Tuesday to increase regulation against aggressive price-cutting and state media carrying front-page editorials against what it described as a race to the bottom.
This is fuelling hopes of new policies allowing unprofitable factories to close or improving consumer incomes, though analysts warn Beijing may struggle to convince local governments to rein in access to cheap credit over fears of job losses….
The Qiushi article, written under a pseudonym, focused on “involutionary competition” where firms and local governments invest capital to chase market share amid limited demand and fail to achieve revenue growth.
It singled out industries such as photovoltaics, lithium batteries, electric vehicles, and e-commerce platforms.
Solar manufacturers called last month for an end to price wars, while on Tuesday car dealers in eastern China complained some automakers are pressuring them to sell cars below cost, warning of high inventories and cash flow risks.
What does ending “price wars” have to do with curbing cheap credit? The Reuters article doesn’t elaborate, and China’s local and national policies are a complicated muddle.
A mixed economy
Government and markets or partial markets are so entangled in China that it is hard to speak of what companies decide to do apart from what governments are making them decide what to do. The Reuters piece should probably be accompanied by a couple sets of encyclopedias about Chinese markets and policies in order to clarify fully. But a company can obviously cut prices in hopes of attracting customers from competing companies even if governments stop flooding the economy with easy money, stop subsidizing, stop issuing special favors and special penalties.
Companies that engage in “compromising on product quality to cut costs [and thus harm] overall consumer interests” cannot, in an unhampered market, do so without losing customers. But Chinese markets are very far from being unhampered.
The Chinese communist (or U.S. liberal) distrust of markets is the opposite of the proper perspective, the one that respects the rights of economic actors. Propping up prices and profits regardless of actual demand and actual circumstances of markets can only encourage unsound practices by depriving companies of the information and incentives that enable them to meet the needs of consumers as efficiently as possible. If responding to market conditions and prospects as rationally as possible means that many prices must come down and some companies must go out of business, that’s just the way it is; there is nothing sacrosanct about either higher prices or the mythical “price stability.”
