China Releases Draft Law Amendment to Tackle Price Wars; Analysts Skeptical
Udumbara
The Chinese communist regime has published a draft amendment to its pricing law to tackle the fierce price wars among companies, as industrial overcapacity and weak domestic demand continue.
China’s National Development and Reform Commission (NDRC) and the State Administration for Market Regulation jointly drafted the amendment to the price law and released it on the NDRC website on July 24.
The proposed revisions explicitly prohibit collusion to manipulate prices, dumping below cost, and disguised price adjustments. At the same time, the draft further regulates pricing guidelines. For illegal price marking, a fine of up to 50,000 yuan (US$6,989) may be imposed in serious cases.
The amendment comes as overcapacity and low demand have led many Chinese companies to resort to price wars to boost sales as competition intensifies.
According to U.S.-based independent economist Davy J. Wong, the Chinese Communist Party’s (CCP’s) attempt to control the price wars of the manufacturing industry, while vigorously supporting the expansion of related industries, has contributed to a “confusion of policy signals [and] led to disorder of capital expectations.”
Wong told The Epoch Times on July 24 that the root cause of the contradiction in the CCP’s policies lies in the fact that its economic model is highly investment-driven and dependent on capacity accumulation, and “lacks an effective mechanism for transforming domestic demand and exiting the market.”
The fierce price war of the manufacturing industry is not a “vicious competition” actively chosen by enterprises, but “a systemic dilemma under the pressure of resource surplus and growth,” Wong said.
He said that the proposed revisions are similar to the regime’s “supply-side structural reform” a decade ago that attempted to address issues like overcapacity, excessive housing inventory, and high corporate debt. But this time, “the industrial downsizing faces more severe challenges.”
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Wong said, “Currently, China’s economic growth has stagnated, domestic demand has been weak, local government debt has been high, private enterprise confidence has been low, and youth unemployment has remained high, and the space for such reform has been greatly compressed.”
Sun Kuo-hsiang, a professor of international affairs and business at Nanhua University in Taiwan, shares a similar assessment.
“Ten years ago, resource reallocation and unemployment pressure could be absorbed through urban village redevelopment and infrastructure expansion. However, now the space for stimulating real estate and infrastructure is limited, domestic demand is sluggish, and there is insufficient substitution momentum,” he told The Epoch Times on July 24.
Sun pointed out three negative consequences of relying solely on administrative rectification of price wars.
First, “the elimination of weak players in the market may lead to an increase in industry concentration, which in turn may lead to a vicious cycle of price monopoly and inefficient expansion,” he said.
The second is that “small and medium-sized enterprises are unable to withstand policy shocks, which may lead to job losses and increased social risks.”
The third is that “corporate resources are used to deal with policy uncertainties rather than R&D investment, thereby suppressing the industry’s willingness to innovate.”
Sun pointed out that the solution should shift to a demand-oriented model, “including boosting domestic demand and residents’ income, optimizing market mechanisms, reducing subsidy bias for capacity-based projects, and establishing a truly market-oriented industrial elimination mechanism, rather than simply punishing companies’ market competition behavior.”
