China Signals End to Price War After Nearly Three Years of Deflation, Aiming to Tackle Excess Supply Without Derailing Growth
China Signals End to Price War After Nearly Three Years of Deflation, Aiming to Tackle Excess Supply Without Derailing Growth
China is signaling a major shift in economic strategy, moving to end a years-long price war that has battered industries from steel and solar panels to electric vehicles. After nearly three years of battling persistent deflation, the government under President Xi Jinping is indicating it plans to rein in excessive competition and tackle chronic overcapacity — without stalling economic growth or risking mass layoffs.
Bloomberg reports that Beijing’s stance has notably shifted in recent weeks. Xi Jinping and other senior officials have publicly acknowledged the damaging effects of cutthroat price competition, which has driven down prices and squeezed profits across key industrial sectors.
Deflation and Tariff Pressures Force Policy Shift
This policy pivot comes after China endured almost three years of deflation, alongside mounting pressure from U.S. import tariffs that have undermined the competitiveness of Chinese goods in global markets.
Yet the road ahead remains fraught with challenges. Xi’s government faces the delicate task of reducing overcapacity without choking off economic momentum or threatening jobs—particularly at a time when external demand is slowing, and stable trade relations with the U.S. remain elusive.
Duncan Wrigley, Chief China Economist at Pantheon Macroeconomics, noted:
“Even though deflation itself remains a politically sensitive term in Beijing and is rarely mentioned publicly, the latest signals clearly show policymakers intend to tackle disorderly competition and the price war in sectors like autos.”
Industries Begin Cutting Production
Trade associations and state media have echoed this new policy tone, urging an end to price wars. Some companies across sectors from steel to glass manufacturing are reportedly planning to scale back production. Prices for key products have already plunged: rebar steel, critical for construction, has dropped to its lowest level since 2017, while glass prices are hovering near nine-year lows.
Wendy Liu, Head of China and Asia Equity Strategy at JPMorgan Chase, commented:
“If China manages to handle its excess capacity problem properly, it could be beneficial for global trade by easing the tensions caused by oversupply flooding into international markets.”
Short-term Pain vs. Long-term Stability
However, Liu also warned that such measures could hurt economic growth and employment in the near term:
“It’s a balancing act. Reducing excess capacity might not be friendly to short-term economic growth or job creation.”
China’s central bank has expressed similar concerns, stating that prices across various sectors remain persistently low — a significant economic challenge not seen in years.
In May, the People’s Bank of China released an analysis stressing the limits of relying solely on monetary easing to stimulate the economy, particularly given China’s growth model still heavily tied to investment and excess industrial capacity.
Pushing Ahead with High-Tech Ambitions
Despite these pressures, China remains committed to boosting its high-tech manufacturing capabilities. The government is reportedly considering a new version of its “Made in China 2025” plan to promote advanced technology production and strengthen long-term competitiveness.
Analysts at Morgan Stanley argue that China’s longer-term transformation will require fundamental reforms to its growth model, which currently depends on investment and manufacturing. Such reforms may even include changing how local officials are evaluated — shifting away from purely GDP growth targets toward metrics like consumption and income growth.
China now stands at a critical juncture: whether to continue competing on low prices, or to restructure industries for stability and sustainable development in the years ahead.