MIIT Intensifies Rectification of "Involution" in Auto Industry; Great Wall GM: Firmly Supports, Involution Will Drag Down the Industry
News Summary
The Ministry of Industry and Information Technology (MIIT) recently announced it will intensify efforts to curb “involutionary” competition in the automotive industry, addressing its impact on corporate operations and the industry's healthy, sustainable development. Zhao Yongpo, General Manager of Great Wall Motor's Haval and ORA brands, expressed strong support for this policy, emphasizing that “involution” among automakers ultimately drags down the entire industry chain, from suppliers to dealers, before impacting the automakers themselves. Great Wall Motor has consistently opposed price wars. Chairman Wei Jianjun previously publicly denounced “price wars” as not only depleting corporate profits but also eroding consumer trust in “Made in China” products. He highlighted that some companies disregard business rules, relentlessly pressure suppliers for price reductions, and even delay payments, creating a harsh survival environment for suppliers. Furthermore, he noted instances of original equipment manufacturers (OEMs) cutting corners, affecting vehicle safety, longevity, and reliability, asserting that significant price drops while maintaining quality are impossible. MIIT encourages companies to reduce production costs through technological and management innovation, offering higher quality and more cost-effective products. They believe disorderly price wars hinder sustained R&D investment, compromise product quality and service levels, and can even pose safety risks, harming consumer rights. Ultimately, this weakens the industry's inherent developmental momentum. MIIT stressed that “price wars” have no winners and will promote optimization and adjustment of the industrial structure.
Background
The Chinese automotive market has experienced unprecedented “involutionary” competition in recent years, with price wars escalating particularly since early 2023. Leading enterprises like Tesla and BYD initiated price reductions, quickly prompting other car manufacturers to follow suit. This has severely compressed profit margins in the market, with some companies even incurring losses. This competitive model extends beyond new car sales to the supply chain, forcing suppliers to lower prices and even leading to payment arrears. There is widespread concern that disorderly price wars will harm the industry's long-term healthy development, impacting corporate R&D investment and product quality. The Chinese government, particularly the Ministry of Industry and Information Technology (MIIT), has consistently focused on the healthy development of the automotive industry, issuing a series of policies to support technological innovation and industrial upgrading. However, the current statement regarding market competition, specifically targeting “involution,” signals a clearer intention to curb these practices, aiming to guide the industry from price competition towards value competition and technological innovation.
In-Depth AI Insights
What are the core drivers behind MIIT's intervention in the automotive industry's “involution”? MIIT's intervention is not merely about maintaining market order; its deeper motivations lie in protecting and guiding the long-term strategic interests of China's automotive industry. These include: - Protecting supply chain stability: Disorderly price wars severely squeeze or even bankrupt suppliers, which undermines the integrity and resilience of China's automotive supply chain, thereby impacting national industrial security. - Promoting premiumization and brand elevation: Price wars contradict China's strategic goal of moving its auto brands into global mid-to-high-end markets. Excessive involution could solidify a low-price, low-quality brand image, hindering technological innovation and brand premium formation. - Driving technological innovation: Encouraging companies to invest resources in R&D and technological innovation rather than price wars aligns with China's national strategy of transitioning from a “manufacturing giant” to a “manufacturing powerhouse.” The goal is to enhance international competitiveness through technological advancement, not just simple cost advantages. - Preventing disorderly capital expansion: Wei Jianjun's remark that the industry should not be overly controlled by capital aligns with the government's overall regulatory approach to “disorderly capital expansion,” aiming to prevent short-term profit-seeking from harming long-term industrial health. How might this intervention reshape the competitive landscape and investment strategies within China's auto industry? This MIIT crackdown will have profound effects on the industry's competitive landscape and investment strategies: - The strong get stronger, the weak face pressure: The policy will benefit leading enterprises with core technologies, strong brand power, and robust supply chain systems, such as BYD, Geely, and Great Wall Motor. They can better enhance competitiveness through technological and management innovation rather than relying on price wars. Companies primarily relying on low-price strategies and lacking technological moats will face greater survival pressure. - R&D investment prioritization: Investor focus will shift from short-term market share and sales to a company's long-term R&D capabilities, technological reserves, and innovation efficiency. Companies with forward-looking technological layouts (e.g., intelligent driving, high-performance batteries) will be more favored. - Supply chain integration and optimization: Suppliers' bargaining power and survival environment are expected to improve, fostering healthier industry development. OEMs may prioritize long-term partnerships with high-quality suppliers over blindly squeezing prices. - Accelerated mergers and acquisitions: Market consolidation may accelerate, with some smaller or poorly managed automakers potentially being eliminated or integrated, thereby increasing industry concentration. Could the crackdown on “involution” spread to other highly competitive Chinese industries? Given that “involution” has become a widespread phenomenon in the Chinese economy, MIIT's action in the automotive sector might signal similar government interventions in other highly competitive industries. The government's concern about “involution” is not limited to the auto industry but is seen as a bottleneck affecting high-quality economic development and inhibiting innovation. For instance, similar issues of excessive competition exist in consumer electronics, internet services, and even some manufacturing sectors. If the crackdown in the automotive industry yields significant results, it is plausible that the government could extend this experience to other sectors, guiding competition across society to shift its focus from pure price wars to technological innovation, product quality, and service improvement, aiming for more sustainable industrial development. This reflects the Chinese government's determination to transition its economic development model from quantity to quality.