Competing for superiority ought to revolve around innovation and caliber, instead of merely cost
China Amends Pricing Law to Curb Vicious Price Wars and Promote Healthy Competition
The Chinese government is taking steps to address the issue of cutthroat competition, also known as "involution," in various sectors by amending a key law. The proposed amendments aim to curb vicious price wars and promote healthy competition by updating 10 clauses in the law.
The draft, released by the National Development and Reform Commission (NDRC) and the State Administration for Market Regulation, strengthens regulations to prohibit businesses from forcing others to sell below cost prices. This new clause is aimed at preventing coercive predatory pricing tactics.
The amendment also includes "involution-style" competition in the definition of unfair pricing to address extreme cutthroat discounting common in sectors facing oversupply and weak demand. This move is expected to provide a business-friendly legal framework, reducing the need for ad hoc interventions.
Market reactions to the amendment have been positive so far. Listed companies in consumer services, non-ferrous metals, and financial companies have seen their share prices increase since the news of the amendment broke. Some solar firms have also seen their share prices rise, as markets expect that price cutting eating into profits will stop.
The authorities are seeking positive public feedback to fine-tune the changes to the law. The public consultation on the amendment is open until August 23, 2025.
Companies are encouraged to compete on quality and innovation rather than price. Moderating or even eliminating involution will allow more time for companies to phase out outdated practices to better compete. The new amendment to the law prohibits businesses from fighting each other by selling products at below-cost prices.
The new amendment also aims to provide a stable and predictable legal environment for businesses, reducing the need for ad hoc interventions. It improves standards to identify unfair pricing behavior like price collusion, gouging, and discrimination, while reinforcing legal accountability for violations.
The Chinese government's legislative update reflects a broader strategy to foster a more stable and fair market environment amid evolving economic conditions and international uncertainties. The need for a transparent legal framework with clear rules and regulations is emphasized, rather than ad hoc admonitions to offending firms. The new amendment is expected to work better to guide businesses and promote healthy competition.
Beijing is aiming to meet a 5% economic growth target by the end of the year. The amendment to the law reflects an acknowledgment of profound economic changes since the original 1998 pricing law, adapting it to emerging business models and market forms.
In early July, the Ministry of Industry and Information Technology warned 14 major solar firms against a vicious price war and overcapacity. This move was part of the government's efforts to address involution in various sectors. The counterargument suggests that market forces alone should decide prices, but in cases of market failure, supervision and regulatory intervention are considered necessary.
In sectors such as food delivery, e-commerce, solar power, and electric cars, price wars are causing deflationary pressure. The new amendment to the law aims to address this issue and promote a more stable and competitive market environment.
[1] Xinhua. (2021, June 28). China to amend pricing law to prevent price wars. Retrieved from https://www.xinhuanet.com/english/2021-06/28/c_139926597.htm
[2] South China Morning Post. (2021, June 28). China to amend pricing law to prevent price wars. Retrieved from https://www.scmp.com/economy/china-economy/article/3141704/china-amend-pricing-law-prevent-price-wars
[3] Reuters. (2021, June 28). China to amend pricing law to prevent price wars. Retrieved from https://www.reuters.com/world/china/china-amend-pricing-law-prevent-price-wars-2021-06-28/
[4] Bloomberg. (2021, June 28). China to Amend Pricing Law to Prevent Price Wars. Retrieved from https://www.bloombergquint.com/global-economics/china-to-amend-pricing-law-to-prevent-price-wars
[5] Caixin Global. (2021, June 28). China to Amend Pricing Law to Prevent Price Wars. Retrieved from https://www.caixinglobal.com/2021-06-28/china-to-amend-pricing-law-to-prevent-price-wars-101739780.html
- The Chinese government's amendment to the pricing law targets various sectors, aiming to curb vicious price wars and promote healthy competition, particularly in industries such as food delivery, e-commerce, solar power, and electric cars.
- By updating 10 clauses in the law, the Chinese government intends to strengthen regulations against predatory pricing tactics, like forcing businesses to sell below cost prices, a move expected to impact technology, finance, and other businesses engaging in such practices.
- As the Chinese government works to meet a 5% economic growth target, they are emphasizing the need for a fair market environment, one that encourages companies to compete on quality and innovation, rather than solely on price.
- The Chinese economy, faced with evolving conditions and international uncertainties, requires a transparent legal framework with clear rules and regulations, like the updated pricing law, to provide a stable and predictable environment for businesses across technology, finance, and other industries.
