China Vows to Address ‘Irrational Competition’ in EV Sector | Mint

China pledged to rein in “irrational competition” in its electric vehicle sector, reflecting authorities’ increasing urgency to tackle deflationary price wars threatening economic and industrial growth.

The vow came in a State Council meeting Wednesday that was chaired by Premier Li Qiang, according to a readout published by Xinhua News Agency. The gathering of what is essentially China’s cabinet pledged to effectively regulate market order in the industry and guide companies to boost competitiveness through innovation and better product quality. 

The government’s focus on the EV sector comes weeks after the top leadership’s pledged to curb aggressive price wars, prompting speculation over upcoming policy action. While Beijing is on track to meet its growth target of around 5% this year, worsening deflation threatens to drag the world’s No. 2 economy into a prolonged slowdown.

“The leadership is clearly growing more concerned about deflation,” said Tianlei Huang, China program coordinator at the Peterson Institute for International Economics. “If EV prices can stabilize, then prices in upstream industries like steel could also stabilize and ultimately that could help ease some of the downward pressure on overall prices.”

Chinese electric vehicle stocks listed in Hong Kong mostly advanced on Thursday, with Geely Automobile Holdings Ltd rising as much as 2.4% and BYD Co Ltd gaining over 1%, both outperforming the benchmark Hang Seng China Enterprises Index.

Authorities will now step up monitoring of prices and costs, strengthen inspection on product quality and make sure key carmakers are paying their suppliers on time, according to the readout. The meeting called for a long-term mechanism to regulate competition and better self-discipline in the industry, without providing more details on concrete actions. 

China’s EV industry has become a world leader. BYD Co. sold more fully electric cars in Europe than Tesla for the first time ever in April. That success has raised tensions with the US and Europe over potential damage to their domestic auto companies, which are huge sources of employment.

How to rein in price wars among private companies without undermining confidence in one of the prized “new three” green sectors that President Xi Jinping has championed is becoming a growing challenge — and attracting an unusual level of intervention from Beijing.

Last month, Chinese officials summoned the heads of major EV makers, including BYD, to address concerns over things including below-cost prices and mounting bills owed to suppliers. Later, BYD, Zhejiang Geely Holding Group Co. and other major automakers pledged to shorten the period for bill payment to suppliers to 60 days.

Transportation and communications products make up over a tenth of China’s consumer price index basket, according to economist estimates. Prices for transportation facility, a subcategory that mainly consists of automobiles, have been in decline for three straight years. Overall consumer prices have hovered around zero since early 2023.

Finding a solution to end the EV price war will be the real challenge, economists say. 

The authorities may resort to administrative tools such as price reviews or cost investigations to establish a de facto price floor, or coordinate a concerted capacity reduction among leading EV makers, according to PIIE’s Huang, who said that those measures won’t be easy.

Beijing will also need to overcome local governments’ resistance to letting local champions fall. Regional officials are motivated to keep unprofitable companies alive in order to protect tax income and local employment, as well as to outperform in a competition with other localities in fostering sectors favored by top leaders.

“Ultimately, instead of encouraging competition among localities — which has fueled overcapacity in sectors like EVs and solar — the central government would need to stress coordination and make this a bigger part in evaluating local cadres’ performance,” said Huang.

Even after the number of EV makers started shrinking for the first time last year, the industry is still using less than half its production capacity. That signals a shakeout may just be getting started.

Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said authorities will also likely press for industry consolidation to clear out smaller loss-making firms.

“I expect they will look at traditional fuel car-making too, with lots of excess capacity given the trend shift to EVs,” Wrigley said. “Local SOEs have put up resistance to merger and acquisition proposals, but it might just be delaying the inevitable.”

With assistance from Charlotte Yang.

This article was generated from an automated news agency feed without modifications to text.