China’s State Administration for Market Regulation (SAMR) on Thursday issued guidelines prohibiting automakers from selling vehicles below the cost of production, a move intended to halt a damaging price war that has gripped the world’s largest automotive market. The intervention follows a nearly 20% drop in passenger car sales in January, the steepest decline in almost two years, according to the China Association of Automobile Manufacturers (CAAM).
The new rules target manufacturers, dealers and parts suppliers, explicitly banning practices designed to “squeeze out competitors or monopolize the market.” Violators face “significant legal risks,” the SAMR warned. The guidelines also address deceptive pricing strategies and collusion between parts suppliers and automakers, signaling a broader effort to stabilize the industry.
The price war has resulted in an estimated 471 billion yuan ($68 billion) in lost output value across the Chinese auto industry over the past three years, according to Li Yanwei, a member of the China Automobile Dealers Association. The decline in January sales – 1.4 million passenger cars compared to 2.2 million in December – reflects both the price competition and weakening consumer confidence, particularly among buyers hesitant to make large purchases amid economic uncertainty.
The downturn has been exacerbated by the phasing out of tax exemptions for electric vehicle (EV) purchases in some regions, coupled with uncertainty surrounding the continuation of trade-in subsidies for EVs. These policy shifts have contributed to a slowdown in EV demand, a sector that had previously driven growth in the Chinese auto market.
Despite the domestic challenges, Chinese automakers are increasing their global footprint. Passenger car exports from China jumped 49% year-on-year to 589,000 units in January. However, analysts at S&P forecast a potential decline of up to 3% in overall light vehicle sales in China for 2026, suggesting the domestic market’s struggles may persist.
The SAMR’s intervention aims to address the deflationary pressures within the industry and restore profitability for automakers and suppliers. The guidelines require a more sustainable pricing structure, but the long-term impact on market dynamics and consumer behavior remains to be seen. The administration has not yet detailed specific enforcement mechanisms or timelines for compliance.
