Fair Race

The 2026 government work report issued this March raised the stakes, vowing stronger antitrust enforcement, tighter regulation and quality oversight to shift competition from price wars to value creation.　

Economically, involution is regarded as a major barrier to China's aspiration for innovation-driven, high-quality development. Sectors affected range from steel and cement to food delivery, solar, lithium batteries and electric vehicles.　

As enterprises chase scale over sustainability, often through endless price wars and other market-disrupting tactics, the interests of industries, consumers and the enterprises themselves are harmed. The result is distorted resource allocation, reduced investment in innovation and erosion of profits.　

More importantly, these dynamics threaten the three driving forces of China's sustainable growth: domestic demand-driven growth, innovation-driven high-quality development and a unified national market.

Recognizing China's mega-market as "one of the huge advantages for our country's high-quality development," the Communist Party of China (CPC) Central Committee and the State Council, China's cabinet, announced plans to build a "unified national market" in 2022.　

Given the rising volatility of the geopolitical and global economic landscape, domestic consumption has begun to play a bigger role in China's economy. According to the National Bureau of Statistics, final consumption expenditure has been the largest contributor to China's annual GDP growth for most years since 2014.　

In 2020, the CPC Central Committee decided to "make domestic circulation the mainstay, with domestic and international circulations mutually reinforcing each other."　

Officials from the Ministry of Commerce (MOFCOM) and the State Administration for Market Regulation (SAMR) said at a press conference in May 2022 that a strong unified national market would provide the foundation to boost domestic consumption, build a stable rule-based market environment and facilitate China's participation in international cooperation and competition.　

In recent years, concerns and criticism have grown over irrational market competition that undermines innovation, the unified national market and consumption.　

In his book Fighting Excessive Competition, published in January 2026, Song Zhiping, chairman of the China Association of Public Companies, distinguishes between healthy and vicious competition.　

The former focuses on technology, quality, branding, service and reasonable pricing to create value. In the latter, most enterprises in a sector become trapped in a struggle for market share with similar technology, low quality and pricing below cost, which constrains investment in innovation.　

Song said that roughly 20 percent overcapacity can motivate innovation and reward strong performers, while 50 percent overcapacity tends to trigger vicious competition and a race to the bottom on prices.　

As Zhang Jinjie of the Committee on Economic Affairs of the Chinese People's Political Consultative Conference wrote in a December article in Party journal Qiushi, when nearly all market entities lose room to improve profits, they tend to resort to "homogeneous competition," in which competitors offer similar products and services instead of developing innovative ones.　

Zhang argues that the lack of innovation is the root cause of irrational competition and that channeling market resources toward innovation is the solution.　

Since October 2022, China's Producer Price Index (PPI), a major indicator of industrial profitability, has declined year-on-year every month. Profits of industrial enterprises above designated size (with annual turnover of over 20 million yuan (US$2.8m)) fell for three consecutive years (2022-2024) and rose only 0.6 percent in 2025.　

Industries characterized by low prices and overcapacity have seen particularly sharp declines. For example, profits in the coal mining and washing sector fell 41.8 percent in 2025. The National Energy Administration revealed in July 2025 that some companies in the sector relied on expanding capacity even more to cope with falling prices.　

By contrast, innovation has delivered strong results. Profits in high-tech manufacturing rose 13.3 percent in 2025, with integrated circuits surging 128 percent and semiconductor equipment 172.6 percent.　

"Poor-quality products that were once rampant during earlier periods of inferior technology and fierce competition could reappear if price becomes the only standard in continued unfettered competition," warned Professor Mao Zhenhua of the Renmin University of China in Beijing in an interview with the Beijing Daily in February 2025.　

For example, Shenzhen Romoss Technology was penalized for producing uncertified power banks and false capacity labeling. The action followed several reported fires and explosions caused by overheating during charging of some Romoss products.　

Song Zhiping stressed in his book that while consumers may benefit from lower prices in the short term, they may suffer income reductions or even job losses as employees in industries caught in excessive price competition.　

Since 2023, China's retail sales growth has lagged behind overall GDP growth for three consecutive years, a key indicator of cautious consumer spending.　

Excessive competition among local governments to attract investment also undermines the development of a unified national market. As Zhang Jinjie wrote in his article, disruptive interventions by local governments pursuing short-term GDP growth, including protectionism, market segmentation and intense competition to attract businesses, have contributed to serious overcapacity in some sectors, further intensifying low-quality, low-price competition.

From late 2025, the SAMR launched a campaign against local protectionism and illegal preferential treatment for local firms. Local governments often offered incentives such as land and tax rebates to attract key industry enterprises. By the end of 2025, the SAMR had investigated 96 cases and closed 75, curbing improper government interference. Provinces including Shandong and Fujian have since strengthened oversight of investment promotion and bidding processes to align with the unified national market.　

Food delivery platforms were twice admonished in 2025 to end predatory pricing and shifting costs onto merchants and riders. Ctrip, a leading online travel agency, was interviewed by regulators in September 2025 and February 2026 and instructed to eliminate misleading services and standardize price disclosure. Coal mines with monthly output exceeding planned quotas during the first six months of the year were ordered to suspend production. Research by China Fortune Futures showed that 93 percent of national coal output was affected by the crackdown.　

Unlike earlier administrative orders to cut capacity, current measures rely more heavily on laws and market mechanisms. Zhang Jun of China Galaxy Securities noted in an interview with China Business News in January that the campaign focuses particularly on emerging industries and on legal and self-regulatory tools.　

At a press conference in February, the SAMR outlined major changes to the regulatory framework, especially for the digital economy. The revised Anti- Unfair Competition Law, which took effect in October 2025, clearly states that platforms cannot force merchants to sell below cost. Other specific guidelines and regulatory rules cover internet platform monopolies, pricing practices in food delivery services and the safety and quality of products sold on e-commerce platforms. Higher standards are also being introduced for photovoltaic (PV), automotive and battery products.　

The implementation rules for fair competition review, which took effect in April 2025, establish principles, standards and supervisory mechanisms governing government policies related to market access, pricing, monopoly behavior and local protectionism.　

In January 2026, the SAMR released 10 cases of enforcement actions by the agency covering sectors such as new energy vehicles, PV and pharmaceuticals. Each case addressed practices including predatory pricing, unfair competition, false advertising and substandard products. Regulators stressed that all cases were handled strictly in accordance with relevant laws and regulations.　

In July 2025, the draft revision of the Pricing Law, the first since 1998, was released for public comment. By the end of 2025, the National Development and Reform Commission (NDRC), the SAMR and the Cyberspace Administration of China had issued new rules regulating platform pricing to protect both consumers and businesses. Sector-specific governance has also expanded to industries such as PV, automobiles and power batteries.　

The work report of the Supreme People's Court, delivered on March 9 at the annual two sessions, revealed that 27 anti-monopoly verdicts were issued in 2025 as part of efforts to curb excessive competition.　

These anti-monopoly legislative and law enforcement actions are crucial for the efforts against vicious competition. Song Zhiping observed in his research that excessive competition can also occur in sectors with relatively high market concentration and no severe overcapacity. In his book, Song argues that leading enterprises sometimes initiate price wars without considering the interests of the broader industry. Leveraging their scale and cost advantages, these firms may trigger price competition that drags the entire sector into excessive rivalry. Although their own profits decline, they may still take satisfaction in seeing competitors suffer losses.　

This observation challenges the previously widespread assumption that excessive competition is mainly caused by low market concentration and the disruptive behavior of smaller players, he noted.　

In 2026, new rules for building a unified national market are expected to be formulated, with a particular focus on curbing rat-race competition.

In the PV sector, leading glass producers voluntarily cut output by 30 percent to ease oversupply. The China Photovoltaic Industry Association (CPIA) issued an anti-involution initiative against below-cost dumping and power rating fraud, with major companies agreeing to coordinate capacity expansion and phase out outdated production.　

Self-regulation has also spread to lithium-ion batteries and related materials, with producers halting irrational expansion and adjusting prices to restore profit margins. Steel and cement industry associations have implemented output controls and unified capacity registration systems.　

In the platform economy, food delivery companies have ended forced merchant promotions and cost shifting to riders, while travel booking platform Ctrip has improved price transparency and removed misleading services. These industry-led self-regulatory efforts complement government regulation and support healthier competition.　

Since late 2025, several industry initiatives have emerged. A long-planned platform to manage excess polysilicon production capacity in China's PV sector was launched, which industry insiders describe as a centralized stabilizing mechanism similar to OPEC. In addition, producers of lithium iron phosphate for batteries have collectively raised prices and a draft for automotive industry pricing has been released for feedback.　

In January, the Ministry of Industry and Information Technology (MIIT) convened a symposium urging manufacturing sectors including steel, automobiles, machinery, electronics and pharmaceuticals to participate actively in industry rule-setting and establish self-discipline mechanisms to counter excessive competition.　

Yue Zhigang of China Chengxin International Credit Rating, noted that the 2026 central policy for deeper anti-involution rectification builds upon the 2025 approach while continuing to emphasize the construction of a unified national market.　

In an interview with Jiemian News this March, Yue said that as the anti-involution campaign progresses, prices in some upstream industries have begun to rebound. Cement and lithium-ion battery prices had risen for four consecutive months by January, suggesting that curbing involution helps stabilize prices and improve market circulation.　

Guotai Haitong Securities forecast in March that coal prices may rebound in 2026 amid the crackdown on excessive competition in the coal sector and the shift toward prioritizing quality over quantity in new energy power installations since the second half of 2025.　

As a result, the year-on-year decline in the PPI has gradually narrowed since July 2025, easing the pressure of price wars on corporate profitability.　

A moderate price rebound is also a key policy objective for 2026, according to the Central Economic Work Conference. An editorial in the State-run Economic Daily on January 30 stressed that curbing excessive competition would help restore rational pricing and allow prices to better reflect real supply and demand.　

"The effects of anti-involution regulation will continue this year. Progress in emerging sectors such as PV and lithium batteries has exceeded expectations. With the orderly phasing out of outdated capacity and stronger industry self-regulation, prices in key industries are likely to recover," Yue added.