In most parts of the world, when companies hike prices, governments raise their eyebrows and sometimes their fists. Accusations of price gouging are flung around, and regulators swoop in to protect the public from corporate greed. But in today’s China, the concern isn’t about prices going up. It’s about prices falling too fast and too far. And in a country where government power knows few bounds, even discounts can be political.
In May, Chinese authorities publicly reprimanded car manufacturers not for overcharging, but for slashing prices.
The message from the state was clear: “There are no winners in this price war.” Yet tell that to the customer who just bought a sleek electric vehicle for under $8,000.
The irony is impossible to ignore. While much of the world battles inflation, China is staring down a different kind of economic demon: deflation. And President Xi Jinping seems determined to wrestle that beast into submission, even if that means trying to reverse market logic itself.
The government’s growing unease is rooted in a simple but troubling reality, prices in several sectors, especially cars, real estate, and consumer goods, are falling fast. Rather than signaling healthy competition, this has begun to look like economic weakness. Factories are underused. Consumers are cautious. Investment is stalling. The engine that once powered global growth is sputtering.
But instead of addressing the root causes like weak consumer confidence, overproduction, a shaky property market. China’s leaders are leaning on old habits: command and control. They’re telling companies to stop competing too aggressively. They’re scolding automakers for making electric cars more affordable. In short, they’re trying to engineer stability by decree.
price wars don’t start out of nowhere. Businesses slash prices when demand is weak or when supply outpaces consumption. These are market signals, not malicious intent. And in China’s case, those signals are flashing red.
The housing market is still recovering from the fallout of overleveraged developers like Evergrande. Youth unemployment remains uncomfortably high. Private sector confidence is lukewarm, thanks in part to years of abrupt regulatory crackdowns. Even consumer behavior has changed. Many Chinese families, still bruised by pandemic-era uncertainties, are saving more and spending less.
Yet instead of acknowledging this deflationary drag and stimulating demand, Beijing is choosing to fight the symptom, (falling prices) rather than the disease.
For years, China was the world’s factory and, increasingly, its marketplace. A booming China meant booming exports, swelling investment, and rising global demand. But when China tries to suppress price competition at home, it sends ripple effects across global markets.
In trying to stop this natural process, Xi Jinping may be doing more harm than good. Because when even discounts are seen as a threat, you have to wonder: what does that say about the state of China’s economy and its confidence in its own people to make choices for themselves?