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Frank Chen

China’s years-long fight against the cutthroat price wars plaguing key industries has prompted the deployment of a more powerful tool – cost accounting – as the authorities also renew efforts to help small businesses receive delayed payments.
The country’s top economic planning agency – the National Development and Reform Commission (NDRC) – and the State Administration for Market Regulation (SAMR) publicly released a notice on Thursday on tackling “low-price disorderly competition” in important industrial products.
It contained specifics of the cost accounting required to determine if products are priced below cost.
“Current price law contains only broad-strokes measures and there is a need to clarify cost accounting requirements … market players should compete on quality and innovation, not just pricing,” the NDRC said in a related questions-and-answers document. It added that “superior quality should command a premium price”.
The notice said cost accounting should be based on costs incurred during production, using industry averages as a reference, and they should be calculated by industrial associations and reviewed by the NDRC and SAMR.
Cost calculations should also use audited accounting records or properly documented bookkeeping provided by producers. Industry average costs could be determined through a census or sampling approach, the two agencies said, adding that for industries with regional disparities, calculations could be conducted on a regional basis.
They said monitoring would be stepped up to focus on price changes in key industrial goods – which they left undefined – so that issues could be promptly identified.
Tang Dajie, a senior researcher at the China Enterprise Institute, a private think tank, said while the regulators’ intent in fighting price wars was commendable, such work was easier said than done.
“Counting the cost of products is complex given constant price changes,” he said. “While broad product categories have benchmark prices, companies have different supply chains, sources of inputs and sales channels.
“It’s difficult to pin down the exact cost or to track discrepancies between costs and end prices.”
He said the government could rely on industrial associations and statistics departments to monitor prices to save administrative costs and avoid undue interference.
Both the NDRC and SAMR said they would carefully steer clear of intervention.
“Market-determined pricing serves as the critical lever for resource allocation,” they said. “Businesses’ autonomy in pricing decisions must be respected … regulators will only go after disorderly acts to uphold fair competition.”
Both agencies also vowed to avoid a one-size-fits-all enforcement approach, and said they would also consider capacity utilisation and actual operating conditions.
Cost-accounting is a measure contained in a dedicated law on pricing practice that was promulgated in 1997. SAMR is now working on an amendment.
Cutthroat price wars, also known as involution, remain widespread in the world’s second-largest economy – from the electric vehicles sector to daily consumer goods – crimping business margins.
The Communist Party’s top leadership has called out the practice in recent years, describing it as a race to the bottom that threatens to derail market order. In October, the party Central Committee’s fourth plenum listed tackling involution as a key economic task.
Business contracts should be treated more seriously and law enforcement must be stepped up
Tang Dajie, China Enterprise Institute
Also on Thursday, the State Council, China’s cabinet, published guidelines on addressing delays in payments to small and medium-sized enterprises (SMEs), many of which are privately owned.
Key measures included industry-specific rules on maximum payment periods, more robust payment supervision of big companies and a recommendation that cash payments be made to SME suppliers and partners within 60 days of the delivery of goods or services.
All government procurement will be settled through cash payments, as will purchases from SMEs made by state-owned enterprises (SOEs) under the central government. Large enterprises abusing dominance to withhold payment will face government actions, according to the guidelines.
Tang said it was correct to focus on SOEs because some lacked a good track record in making prompt payments to smaller upstream suppliers, but he also urged that more significance be attached to contracts and rule of law.
“Rather than another State Council document, business contracts should be treated more seriously and law enforcement must be stepped up to fundamentally address delayed payments,” he said.
Separately, the NDRC convened a meeting with private sector representatives on Thursday and heard complaints about investment barriers.
The agency also published a new batch of 36 recommended projects spanning railways, logistics, water conservancy and energy that are expected to seek a total of 15.6 billion yuan (US$2.3 billion) in private capital.
The NDRC said it would maintain close contact with private firms and optimise support services in funding and land supply.
Private investment in China fell 9.4 per cent year on year in the first seven months of this year.


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At same time, State Council issues guidelines on avoiding delays in payments to small and medium-sized enterprises


At same time, State Council issues guidelines on avoiding delays in payments to small and medium-sized enterprises.


Chinese regulators unleash power of cost accounting to tackle price war problem

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}At same time, State Council issues guidelines on avoiding delays in payments to small and medium-sized enterprises

At same time, State Council issues guidelines on avoiding delays in payments to small and medium-sized enterprises