Price wars in China’s corporate sector are causing significant profit erosion due to fierce competition for market share amidst excess production capacity. This aggressive competition has led to the dumping of inexpensive Chinese goods in international markets. Companies are compelled to continuously reduce prices, often below cost, particularly in sectors like electric vehicles, solar panels, and batteries. Many firms struggle to generate sufficient revenue to cover debts, relying on bank loans and government subsidies to sustain operations and prevent job losses.
The prevalence of “zombie” companies, unable to meet costs without external support, has risen substantially. Estimates indicate that the proportion of non-financial corporate assets held by such entities surged from 5% in 2018 to 16% in 2024, reaching 30% in emerging sectors like green technology. While some efficient firms can survive by enhancing productivity and cost-cutting, the majority resort to price reductions to compete, impacting profit margins industry-wide. This situation not only affects unproductive companies but also hampers the growth of productive enterprises, posing challenges to the Chinese economy.
Amidst overcapacity, Chinese companies flood global markets with low-cost exports of electric vehicles, solar panels, and batteries, triggering retaliatory measures like tariffs from trade partners. This surplus production and trade tensions exacerbate domestic economic imbalances, creating international trade frictions and challenges. The article emphasizes the negative repercussions of these practices on both domestic and global economic landscapes.
