CCP article issues strong warnings to Chinese manufacturers

A prominent Chinese Communist Party publication has criticized large companies and local governments in China for unfair practices and is demanding a crackdown on the competition that contributes to price wars and squeezes profits in various industries. 

The criticism came via a Qiushi article that is apparently one of the most strongly worded Communist Party warnings yet on industrial overcapacity risks. Shared on Tuesday, it pointed to price wars as the reason behind “enormous waste of social resources,” and unsustainable debt, which could, in time, endanger growth.

Qiushi article issues strong warnings to Chinese manufacturers

Warning from the Qiushi article comes amid mounting concerns over deflationary pressures in China’s economy. These pressures are escalated by U.S. President Donald Trump’s tariffs, causing global uncertainty and threatening demand, something China relies heavily on for its ambitious growth targets.

In China, public messaging against price wars has increased in recent weeks, with top leaders pledging on Tuesday to drive up regulation against aggressive price-cutting and state media propaganda.

The people are now looking forward to new policies allowing unprofitable factories to close or improving consumer incomes. However, analysts have warned that it is possible for Beijing to have trouble convincing local governments to rein in access to cheap credit over fears of unemployment.

“This cuts to the heart of China’s economic model and therefore we’re not going to see quick fixes necessarily,” Fred Neumann, chief Asia economist at HSBC said before adding that it is “encouraging now that we’ve seen the recognition of these issues – that there is such a thing as too much competition and excessive price wars.”

The Qiushi article, which was written under a pseudonym, focused mainly on “involutionary competition,” which sees firms and local governments invest capital to capture market share amid limited demand and still fail to achieve revenue growth.

Last month, solar manufacturers demanded an end to price wars, and on Tuesday, car dealers in eastern China accused some automakers of pressuring them to sell cars below cost, citing high inventories and cash flow risks.

Another thing the Qiushi article highlighted was problematic corporate behavior, including going for inferior quality products to cut costs, which weakens innovation, eats into research and development investments, and ultimately harms overall consumer interests.

Local officials draw criticism for the problems of China’s economic system

Aside from criticizing the unfair practices of large companies, the Qiushi magazine also criticized local officials, blaming them for sitting on the sidelines when they need to step in more, as regulations have failed to keep up with the development of new industries and business models.

And to make matters worse, bankruptcy mechanisms have also been revealed as “imperfect,” leading to issues like excessive supply.

The article also highlighted how some local governments are overly focused on myopic growth goals and quick economic gains, leading them to present as “policy havens.” Local officials have been accused of underhanded tactics such as offering preferential taxes, fees, subsidies, land use, as well as protectionist measures.

Economists have sounded the alarm, warning that high levels of state-guided investment and subdued domestic demand, encouraged by a feeble social safety net and deep rural-urban inequalities, force China to be overly dependent on exports for growth. These conditions then pose debt and deflation risks, the likes of which Japan witnessed in the 1990s.

While the article did not mention deflation, it warned that China might suffer from “development model path dependence” and needs supply-side reforms to reduce excess industrial capacity as well as a strategy to expand domestic demand.

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