Market Trends｜Find the Golden Key to Cracking Down on the “Involutionary” Vicious Competition
2024-08-13
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【Market Trends】
Original title: Find the golden key to crack the vicious competition of "involution"
Workers' Daily-China Workers' Network reporter Zhao Jianying
"We must strengthen industry self-discipline and prevent 'involution' vicious competition." Recently, the Central Political Bureau meeting made a clear statement to prevent "involution" vicious competition, sending a clearer, more direct and resolute signal. As soon as the news came out, it immediately aroused strong resonance and attention in the market.
Fair competition is a basic principle of the market economy and an important foundation for the efficient operation of the market mechanism. Reasonable competition is conducive to technological progress, elimination of backward production capacity and promotion of industrial development. However, vicious competition of "killing one thousand enemies and hurting eight hundred of your own" is now common. In order to pursue short-term interests, some companies do not hesitate to "price war" and "copycat" to imitate advanced technology to win orders and market share.
In recent years, in industries with relatively sufficient competition, such as automobiles, photovoltaics, and semiconductors, there have been repeated constructions in different regions and different enterprises to varying degrees, and vicious competition has been formed by competing to lower prices. Taking the automobile industry as an example, public data shows that from 2020 to 2023, the average revenue per vehicle of my country's large-scale automobile manufacturing industry has been on an upward trend, while the profit of the entire industry has been on a downward trend. In the past four years, the average profit of large-scale automobile manufacturing industries was 6.25%, 6.12%, 5.73% and 5.04% respectively.
In other words, although more and more cars are sold, the profits are getting less and less. This is even more obvious in vehicle companies. According to financial report data, in 2023, most domestic vehicle companies had a profit of less than 6,000 yuan per vehicle, and many companies were in a loss-making state. Since 2024, with the attack of several rounds of price cuts, profits have further declined. According to the first quarter financial report data of 2024, the net profit attributable to shareholders of 60 Chinese automobile industry listed companies was 28.415 billion yuan, a year-on-year decrease of 23.3%.
In the short term, the "price war" caused by "involutionary" vicious competition can allow consumers to buy satisfactory products at lower prices, stimulating the market to release consumption potential. But in the long run, the "life-and-death" competition will often only end up with a "lose-lose" situation. Some companies are caught in a "prisoner's dilemma". In order to maintain their market share, they are unable to increase their investment in research and development, resulting in insufficient momentum for scientific and technological innovation and a lack of development momentum. Against the backdrop of continued price cuts, there may also be disorderly competition behaviors such as cutting corners, counterfeiting and selling fakes, which will in turn affect the development of the supply chain and be detrimental to the sustainable development of the entire industry.
Obviously, it is better to make the cake bigger and stronger than to fight for the limited cake. Where does the cake come from? The key lies in the golden key of scientific and technological innovation. Chinese enterprises themselves are rich in the huge momentum of scientific and technological innovation. In the fierce market competition, if enterprises want to stand out, they must take continuous innovation as the core driving force, constantly strengthen their own competitive advantages, create products and services with high added value, and explore new sources of profit, so as to achieve breakthrough development.
Of course, it should also be noted that preventing "involutionary" vicious competition is a systematic project that cannot be achieved overnight. To fundamentally solve the dilemma, in addition to enterprises, joint efforts from all sectors of society are needed. The country has made it clear that it will further strengthen the market survival of the fittest mechanism and smooth the exit channels for backward and inefficient production capacity, which means that my country will further promote supply-side structural reforms and optimize industrial layout. Industry associations should also play an active role by formulating industry standards and rules, continuously regulating industry order, strengthening communication and cooperation between enterprises, and jointly promoting innovation to achieve win-win results.
Starting from August 1, the "Regulations on Fair Competition Review" will be implemented, and tax incentives as a traditional means of attracting investment by local governments will be phased out. Local governments should be good at implementing differentiated industrial layout and investment attraction to provide enterprises with more development space and choices. In addition, government departments should also promptly release market reasonable capacity warning information to guide enterprises to avoid blind investment.
Source: China Workers Network-Workers Daily
