China Tightens Up Pricing Competitions to Strengthen Economic Stability
In the global landscape of trade, geopolitical tensions can have a profound impact. A recent article published in "Global Logistics" discusses the ongoing challenges faced by China, particularly in the context of the unresolved trade dispute with the United States and President Donald Trump. The article also offers advice on managing risks associated with these tensions.
One of the most pressing issues in China is the mounting deflationary pressures stemming from industrial overcapacity and brutal price wars. To address these issues, the Chinese government has initiated a campaign to control price-cutting by domestic companies, aiming to curtail excessive competition and stabilize the economy. This campaign is not limited to the solar industry, where China's current production capacity is sufficient to meet annual global demand through 2032. However, the industry is facing a crisis due to massive overcapacity, resulting in losses estimated at $40 billion last year.
The solar industry is not alone in this struggle. Other sectors exposed to these destructive dynamics include lithium batteries, steel, cement, and food delivery, where tech giants are burning billions in subsidies to gain market share. The electric vehicle sector has been severely impacted as well, with the median net profit margin for 33 listed Chinese automakers falling from 2.7% in 2019 to 0.83% in 2024. The price war in the electric vehicle sector, involving brands like BYD and Tesla, is a significant factor in the compression of corporate profitability.
Economists warn that changing consumer behavior, driven by expectations of ever-lower prices, risks entrenching deflation. With youth unemployment at 17.8%, Beijing views curbing hypercompetitive practices as essential for social stability. The Chinese government initiated actions to reduce aggressive price undercutting by local companies before June 27, 2025, as indicated by the European Commission's measures against Chinese dumping practices announced on that date.
The article offers three ways to manage risks related to trade wars' impact on supply chains:
- Diversification: Spreading production across multiple regions can help mitigate the effects of trade disputes and geopolitical tensions.
- Risk Assessment: Regularly evaluating the potential risks and vulnerabilities in your supply chain can help you prepare for and respond to unexpected disruptions.
- Collaboration: Working closely with suppliers and partners can help create resilient supply chains that can withstand the challenges posed by trade wars.
As the world continues to navigate the complexities of international trade, it's crucial to stay informed and proactive in managing risks. The ongoing situation in China serves as a reminder of the importance of strategic planning and adaptability in the face of geopolitical tensions.
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