New rules on pricing to stabilize nation's market

China has drafted new guidelines to regulate automakers' pricing practices amid intensifying market competition. The guidelines have elicited positive responses from many automakers.

Within a week after the State Administration for Market Regulation issued the guidelines on auto price earlier in December, more than 10 major automakers including BYD, Chery, Great Wall Motor, XPeng, Leapmotor and Dongfeng Motor pledged to uphold clear pricing and promote high-quality development through honest operations.

The SAMR said that in recent years, the rapid growth of the auto market, especially in the new energy vehicle segment, has led to complex pricing behaviors. These practices have led to issues such as irregular price labeling, price fraud and irrational competition that disrupt the normal market order.

The guidelines require automakers to establish pricing strategies based on production costs and market demand, managing pricing behavior across the entire chain, including vehicle sales and financial services. Improper pricing practices, including sales below cost, will be penalized.

Besides, automakers must respect dealers' pricing autonomy and highlight the legal risks of price-fixing and collusion.

The guidelines are seen as an essential step for the auto sector to transition from reckless growth to a phase of survival of the fittest. They are expected to curb irrational competition and inject new momentum into high-quality development, industry experts noted.

The China Association of Automobile Manufacturers said that the guidelines will promote price transparency for auto products, maintain the safety and stability of the supply chain and protect the long-term interests of consumers.

Yale Zhang, managing director of consultancy Automotive Foresight, said that the guidelines will have a strong deterrent effect, making automakers more cautious about cutting prices arbitrarily.

However, more detailed implementation rules are needed, such as clarifying the definition of below-cost pricing, as automakers of different scales encounter varying cost structures, Zhang added.

The price war in auto market stems from fierce competition, where a price cut of 5,000 yuan ($710) can help automakers capture a larger consumer base. Many automakers even sacrifice profits or sell cars at a loss, which drags down the industry's profitability.

Data shows that the sales profit margin of China's auto industry declined from 7.8 percent in 2017 to 4.3 percent in 2024. In the first quarter of 2025, it dropped further to 3.9 percent — falling below the 4.7 percent average profit margin of the entire industrial sector.

Even industry leader BYD saw revenue growth accompanied by profit decline in the first three quarters, not to mention that many startups are struggling around the breakeven point.

Auto dealers face greater hardship. The China Automobile Dealers Association data shows 52.6 percent of auto dealers operated at a loss in the first half.

Xiao Zhengsan, secretary-general of the CADA, said that some automakers have set unrealistic goals for supply and inventory, leading to increased production capacity but declining revenue and profits.

The association said that cars sold below purchase costs may lead to reduced services and downgraded after-sales support, harming consumer rights.

The guidelines encourage automakers to establish price compliance management systems, promoting a shift from passive compliance to proactive self-regulation, the CADA added.

This year, regulators have frequently emphasized the need for rational development in the auto market, increasing efforts to curb irrational competition. In March, the CAAM urged automakers to stop releasing weekly sales rankings, followed by a May initiative to promote fair competition.

In June, regulations on ensuring timely payments to auto suppliers issued by the State Council came into force, with various measures jointly regulating industry order.

Tighter regulation has yielded initial results. According to Cui Dongshu, secretary-general of the China Passenger Car Association, 173 models had price cuts from January to November, 45 fewer than the same period of 2024.

According to CPCA data, from January to October, the auto industry's revenue rose by 7.9 percent year-on-year, with profits up 4.4 percent and the profit margin slightly increasing to 4.4 percent.

In 2024, the industry saw a 4 percent revenue increase, an 8 percent profit decline, and a modest 4.3 percent profit margin, well below the 6 percent average for downstream industrial enterprises.

Despite slight profitability improvements in the first 10 months, the CPCA noted that the auto industry's profit margin remains low compared to the 6 percent average of downstream enterprises.

caoyingying@chinadaily.com.cn