China’s top leaders vow crackdown on price wars as deflation risks mount

[BEIJING] China’s top leaders pledged on Tuesday (Jul 1) to step up regulation of aggressive price-cutting by Chinese companies, state news agency Xinhua reported, as the world’s second-biggest economy struggles to shake off persistent deflationary pressures.

Overcapacity among Chinese manufacturers and the price cuts made to clear stock, have sparked price wars that are showing signs of influencing consumer behaviour. Analysts worry this could drive further reductions, raising concerns that deflation may become entrenched and hinder efforts to stabilise the US$19 trillion economy.

“Enterprises engaging in disorderly low-price competition must be regulated in accordance with laws and regulations,” Xinhua quoted a meeting of the Central Financial and Economic Affairs Commission as saying.

The commission is a top economic policy body of the ruling Communist Party and is chaired by President Xi Jinping.

“Businesses should be guided to improve product quality and support the orderly phasing out of outdated production capacity,” the Xinhua report added.

Data showed on Monday that manufacturers were slashing prices to attract buyers, as US President Donald Trump’s tariff onslaught threatens the long-term viability of selling to the US, the world’s top consumer market, and domestic demand remains weak.

While new orders edged up, factory gate prices remained in the doldrums, the data showed, suggesting that the economy risks getting stuck in a cycle of ever lower prices.

A front-page editorial published on Sunday in the Communist Party’s official newspaper, People’s Daily, drew significant attention for its call for China’s economy to “break free from ‘rat race-style’ competition” among firms.

The article concluded that relentless price-cutting fostered destructive competition that defied economic principles and had clear negative economic consequences. REUTERS