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China’s market regulator, the State Administration for Market Regulation (SAMR), recently held a meeting with top executives from major solar, automotive and technology companies. The reason? To tackle the growing issue of neijuan, or involution—a damaging cycle of price-cutting that has hurt profits and slowed down innovation.

According to the South China Morning Post, the meeting was led by Vice Minister Meng Yang and focused on finding solutions to excessive market competition, which threatens the long-term stability of these industries.

Executives from companies like BAIC Group, Mercedes-Benz, Alibaba Group, JD.com, Trina Solar, JA Solar Technology and Longi Green Energy Technology were present. However, some of the biggest players in China’s intense auto price war—BYD, Geely, Tesla and Chery—did not attend. Their absence raises doubts about how effective Beijing’s plans to control price-cutting will be.

The issue of neijuan has become a pressing concern for Beijing. It refers to an economic deadlock where companies pour in resources without proportionate returns. The phenomenon has hit China’s solar and EV sectors particularly hard driving down prices to unsustainable levels. The National Development and Reform Commission (NDRC) has made tackling this issue a priority for 2025, calling for the “comprehensive rectification of involutionary competition,” the South China Morning Post said.

While Beijing’s leadership acknowledges the problem, its attempts to address it have largely remained rhetorical. The July Politburo meeting marked the first time neijuan was explicitly mentioned in a central government conference readout, signalling its recognition at the highest levels. However, concrete policies remain elusive, and industry leaders remain sceptical that the government will take significant action.

The absence of BYD and Geely at SAMR’s meeting is particularly telling. These two companies, alongside Tesla and Chery, have been at the forefront of China’s auto price wars. BYD, the world’s largest EV maker by sales, has aggressively cut prices to maintain dominance in China’s competitive market. Geely, similarly, has engaged in frequent price-slashing, making it difficult for smaller automakers to survive.

While Mercedes-Benz and BAIC attended the meeting, these companies have less influence over China’s domestic price competition. BYD and Geely’s absence suggests they do not believe government intervention will change the fundamental market dynamics. If the most aggressive price-cutting firms refuse to participate in discussions, Beijing’s efforts may be doomed from the start.

One of the key concerns is that Beijing has been reluctant to take direct action against price wars, despite acknowledging the problem. According to a Think China report in August 2024, since at least 2022, China’s cleantech sector has faced neijuan, yet authorities have largely relied on dialogue rather than intervention.

Gary Ng, a senior economist at Natixis, told South China Sea Post that industries like solar and electric vehicles are struggling with overcapacity, which is intensifying price wars. He explains that solar cells and automobiles are among the sectors experiencing relatively high overcapacity. Regarding internet platforms, he said that the issue stems from a different cause—resources are concentrated among a few dominant players, whose market pricing power compels sellers to lower their prices.

China’s auto industry is currently locked in a brutal price war that mirrors what economists call a “race to the bottom”. Companies continuously lower prices in an attempt to undercut competitors, but this comes at the cost of profitability and innovation. The phenomenon is not unique to China—similar trends have been observed in other industries globally. However, China’s state-driven economy and emphasis on industrial expansion have made it particularly severe.

Large automakers like BYD and Geely can afford to slash prices, but smaller competitors will be driven out of business. In the long run, this could lead to market monopolisation rather than healthy competition. Moreover, excessive price-cutting reduces incentives for companies to invest in new technologies, ultimately slowing the pace of innovation in China’s auto sector.

If the government decides to intervene, it faces significant risks. Strict price controls or regulatory crackdowns could stifle competition, making the market less dynamic. On the other hand, allowing price wars to continue unchecked may lead to industry instability and economic downturns. The central dilemma for policymakers is finding a middle ground where competition remains fair but does not become destructive.

So far, Beijing has opted for a cautious approach, urging firms to exercise self-restraint. However, as history has shown, relying on corporations to voluntarily curb price wars is unlikely to work.

Despite the rhetoric, there is little evidence that Beijing is prepared to take bold action. The meeting with industry leaders signals recognition of the issue, but without the participation of BYD, Geely and Tesla—the biggest players in the price war—there is little hope for immediate change.

For now, China’s auto sector remains in a state of intense competition with price wars continuing to erode profits. Whether the communist regime will ultimately intervene remains uncertain. Until then, China’s carmakers seem prepared to stay in the ongoing price war, convinced that survival in the market depends on aggressive pricing rather than regulatory relief.