Chinese firms engaged in fierce price war: Report

New Delhi: Price wars are taking a heavy toll on China’s corporate sector as profits are being sharply eroded in the fierce competition to grab a share of the dwindling market pie amid excess production capacity. This is also resulting in the dumping of cheap Chinese goods in overseas markets.

Intense, cutthroat competition is forcing companies to slash prices relentlessly, even when they can’t cover their costs, according to an article published in The Wire China Podcast.

In many sectors, including electric vehicles, solar panels and batteries, Chinese firms engage in endless price wars. A growing number of these companies cannot earn enough revenue to even service their debt, let alone other costs. These “zombie” companies survive only because banks roll over loans and local governments provide subsidies to avoid job losses and keep tax revenues flowing, the article states.

“Recent estimates show this problem is spreading. The share of non-financial corporate assets held by zombies climbed from about 5 per cent in 2018 to 16 per cent in 2024. In newer, high-priority sectors like green tech, the share of zombie companies has hit 30 percent of total listed companies,” the article states.

The more productive Chinese companies manage to survive through improved efficiency and cutting costs through better technology or scale, and can afford to lower prices without immediately running into losses amid shrinking margins.

But this is only a small share of Chinese corporates. Most firms lack those efficiency improvements. Without real productivity advances, they still resort to cutting prices to stay in the market as they get external support from banks or local governments. This is leading to collapsing profit margins across the board, even for the better companies, whose productivity is increasing. In sum, unproductive companies are hurting the productive ones, which is clearly not good for the Chinese economy, the article observes.

The article also highlights that the overcapacity in the Chinese economy is also leading to ultra-cheap exports flooding markets abroad with EVs, solar panels, and batteries. Trade partners respond with tariffs and defences, turning domestic distortions in the Chinese economy into global friction, the article laments.

IANS