An article in the People's Daily condemned price wars and excessive competition, or “involution”. It urged firms to abandon the race to the bottom and refocus on quality, and warned that neijuan (involution) tactics were “infesting” various industries with excess capacity, including electric vehicles (EVs), photovoltaics and batteries. “Solar module prices have tumbled to just CNY0.6 per watt, prices have been slashed on over a hundred EV models while producers of energy storage equipment seek to underbid each other in the race for orders,” the editorial said. “A race to the bottom will weaken the competitiveness of the entire industry.” Cut-throat competition causes profits to plunge, leaving many manufacturers struggling to realize even razor-thin margins. Amid persistent deflation and simmering trade tensions with the United States, industrial profits fell by 1.1% year-on-year in China in the first five months, with a 9.1% decline in May.
Profits in China’s car sector, one of the foundations of the country’s economy, were down 11.9% during the January-May period.The People’s Daily editorial highlighted the decline of the neijuan-riddled sector, saying average profit margins dropped to 4.3% last year, with only four EV makers – BYD, Huawei-backed Seres, Li Auto and Leapmotor – making money in 2024. “Resources are wasted on inefficient competition, which stifles innovation and leaves an imbalance in supply and demand. Involution directly affects wage levels, government tax revenues, investment confidence and the whole economy,” it said. It also warned that involution took forms other than price wars, including companies that abused their dominance of the industrial chain to exploit partners upstream and downstream. In addition, the editorial pointed to businesses that cut corners on quality and made copycat products in sectors that already had excess capacity, as well as local officials who made misguided efforts to woo investment through unsustainable tax breaks and subsidies.
This is the second time in a month that People’s Daily has taken aim at the vicious cycle of low price, low quality and ineffective, unrelenting competition. The newspaper said at the end of May that regulators must act quickly and efficiently to stamp out price wars. A month earlier, the Beijing-based Economic Daily said in a commentary that involution remained prevalent, defining the phenomenon as “the harder you work, the less you gain”. Observers said authorities needed to take tougher action to help ailing businesses escape the trap.
Less than 10 of the 129 Chinese EV brands currently on the market would be profitable by 2030 if the unrelenting discounts continue, as the industry grapples with a price war and chronic overcapacity, according to AlixPartners. However, the country’s top EV players were expected to double their market share in Europe to 10% by 2030, the South China Morning Post reports.
