NextFin News - China's market regulator has drawn a line under the price wars that have gutted profits from solar panels to electric vehicles, pledging to lead cost investigations and price inspections against companies engaged in "malicious" low-price competition and to accelerate the first revision of the national Price Law since 1998. The announcement, made at a State Council press conference on September 20, marks a shift from ad hoc guidance to a formal legal regime — but it leaves open the harder question of whether administrative enforcement can cure the overcapacity that started the wars in the first place.
Shu Wei, spokesperson and deputy director of the State Administration for Market Regulation (SAMR), told reporters at the "Getting Started on the 15th Five-Year Plan" briefing that the regulator would speed up revision of the Price Law, study rules on stopping low-price dumping, guide industry associations to set cost-calculation standards, and build what he called a "1+1+N" legal framework for regulating predatory pricing. On enforcement, he was blunt: authorities would take the lead in launching cost investigations and price inspections against enterprises that carry out malicious low-price competition and disrupt production and business order, and deal with them strictly under the law.
The stakes are large. Years of cutthroat pricing have pushed China's solar manufacturers toward a collective loss forecast of roughly $5.5 billion in 2026, on top of $4.8 billion in 2024, with Tongwei alone expecting a $1.3 billion to $1.4 billion shortfall. In electric vehicles, the pressure is visible in the earnings: BYD, the country's largest EV maker, reported a 55% drop in first-quarter net profit and a 20.5% decline for the first half of 2026, extending a run of four straight quarters of falling profit before a second-quarter rebound. Chinese electric car exports doubled in 2025 — not because margins were healthy, but because producers needed overseas volume to absorb domestic oversupply. Beijing's answer is no longer to urge restraint but to make below-cost selling provable — and punishable.
The Situation: A Legal Framework, Not Just a Warning
The September 20 announcement is the latest and most formal step in a campaign that has been building through 2026. In January, four agencies — the National Development and Reform Commission, SAMR, the National Energy Administration and the Ministry of Industry and Information Technology — summoned 16 leading battery makers and warned against below-cost price wars and disorderly capacity expansion. In February, SAMR released price-conduct compliance guidelines for the auto industry. In March, it issued a notice on fully implementing the revised Anti-Unfair Competition Law that named the platform economy, photovoltaics, lithium batteries and new energy vehicles as the priority sectors for tackling "involution-style" competition. In July, the regulator held a price-compliance meeting with 27 solar companies in Yancheng, Jiangsu, and pushed an industry cost-accounting standard that took effect days later.
What is new on September 20 is the legislative scaffolding. The Price Law has governed pricing conduct since 1998; the draft amendment released for public consultation in July 2025 was its first revision in nearly three decades. SAMR's plan is to pair that revised law with a new regulation on stopping low-price dumping and with cost-calculation standards developed by industry associations — the "1+1+N" structure. The practical point of the N standards is enforcement: for years, companies have used different accounting methods to argue about whether a price actually falls below cost. A unified cost model, of the kind the photovoltaic industry adopted in July, gives investigators a common yardstick.
The regulator was careful not to promise what it cannot deliver. Neither the July solar meeting nor the cost standard set a numerical minimum selling price, and no such price floor has been announced for any sector. Instead, SAMR said it would connect corporate cost accounting with price enforcement and use a ladder of measures — compliance reminders, regulatory interviews, administrative guidance — escalating to formal action against operators that seriously disrupt market order and refuse to correct course after warnings. In the platform economy, it plans to implement internet platform pricing rules and study a price-supervisor system that would put compliance responsibility on the companies themselves.
The market has already shown how it reads these signals. After the July 31 solar guidance, the most-traded polysilicon futures contract on the Guangzhou Futures Exchange hit its daily limit on August 3, closing 8.99% higher at 35,890 yuan a ton, while Tongwei and Flat Glass closed at their Shanghai daily limits. The rally was a bet that regulation could support prices and speed the exit of high-cost capacity — not a belief that the sector's oversupply had vanished. Polysilicon supply was still rising, inventories remained high, and demand from wafer makers and downstream projects stayed weak.
Why the Price Wars Started — and Why They Didn't Stop
To understand what enforcement can and cannot do, it helps to see why the wars ran so long. China's clean-tech champions were built on a simple bargain: scale first, profits later. Local governments supplied land, cheap power and credit; manufacturers raced to add capacity; and when domestic demand softened, exporters shipped the surplus abroad. Electric car exports doubled in 2025 precisely because margins at home had collapsed.
That logic held for as long as three conditions were met: cheap capital, local protection, and open export markets. All three have weakened. Lithium prices at the start of 2026 were more than twice their level a year earlier, even after remaining roughly 70% below the 2022 peak, squeezing battery economics. Beijing has reined in local subsidy races and is overhauling how renewable power is priced. And overseas markets have responded with tariffs and trade probes — the European Union has escalated investigations into Chinese acquisitions and imports, and Chinese solar module makers have seen their shares fall even as the domestic price war raged.
The result is what regulators now call "involution": competition that destroys value instead of creating it. In the first half of 2026 alone, SAMR handled 11,465 unfair-competition cases, including 2,055 involving online false advertising and commercial defamation, across 16 special enforcement campaigns. The regulator's own diagnosis, delivered at a July press conference, was that low-quality,同质化 competition has left firms in profit distress, distorted resource allocation, and suppressed their willingness to invest in innovation — a classic "bad money drives out good" dynamic.
The Mechanism: Making Below-Cost Selling Provable
The central innovation of the new approach is not harsher penalties — the revised Anti-Unfair Competition Law, which took effect in October 2025, already sets defined fines for below-cost coercion — but a change in what can be proven. Predatory pricing enforcement fails when cost is unknowable. If every producer calculates cost differently, every below-cost price can be defended as a legitimate accounting outcome.
The "1+1+N" framework attacks that problem at the measurement layer. The revised Price Law defines the offense; the anti-dumping regulation sets the procedure; and the industry cost standards supply the numbers. Once a photovoltaic module, a battery cell, or an EV has an accepted cost floor, a price below it becomes an administrative fact rather than an economic argument. That is why SAMR paired the July solar meeting with the cost-accounting standard, and why the September announcement emphasizes guiding associations to write those standards across sectors.
This is a structural change in governance, not a cyclical policy tweak. A cyclical measure would be a temporary subsidy, a short enforcement blitz, or a one-off meeting. What Beijing is building is a standing enforcement architecture: permanent cost standards, a price-supervisor system inside firms, platform pricing rules, and a revised statute with expanded investigative tools. The intent is to change the rules of competition, not just the temperature of it.
But the mechanism has a limit built into it. Cost standards can identify dumping; they cannot reduce capacity. A firm that is losing money on every unit will exit only when losses become unbearable or when credit disappears — and a regulated price floor can, if set too generously, keep marginal producers alive longer than the market would. The regulator's own language acknowledges this: it speaks of "connecting cost accounting with price enforcement," not of setting prices.
Second-Order Effects: Who Actually Pays
The first-order effect of the crackdown is the one everyone sees: producers get pricing power back, or at least stop bleeding. The second-order effects travel further and matter more.
First, the bill shifts downstream. China's solar buildout is increasingly driven by state-owned power companies bidding projects through auctions that reward the lowest price. If module prices firm, project returns fall, and the pace of renewable investment could slow — precisely as Morningstar's analysts expect Chinese solar demand to decline by a double-digit percentage in 2026 under the new renewable-power trading policy. Higher input costs for the very state buyers funding the energy transition is the policy's quiet trade-off.
Second, consumers may see the same shift in electric vehicles. EV battery pack prices in China fell 13% in 2025 to an average of $84 per kilowatt-hour, and record discounts have been the main reason Chinese buyers tolerated the sector's weak profitability. If price discipline restores margins, it does so partly by taking discounts away. That is the political calculation Beijing has made: better a slightly more expensive car from a solvent maker than a cheap car from a company that cannot fund the next generation of technology.
Third, the export channel narrows. Chinese manufacturers have used overseas sales to absorb domestic oversupply, and the International Energy Agency projects that by 2035 more than one in four electric cars sold in advanced economies could be made in China. A domestic price floor pushes more volume toward exports at a moment when trade partners are least receptive to it. The policy may stabilize home margins while intensifying trade friction abroad — a substitution of one problem for another.
There is also a distributional question inside industries. The July solar guidance explicitly asked leading manufacturers to "play a demonstration and leading role" and set benchmarks for the sector. Large, diversified players such as BYD, CATL, Tongwei and Longi can absorb compliance costs and use cost standards defensively against smaller rivals. The same rules that protect industry profitability can accelerate consolidation — which is not necessarily bad for innovation, but changes who survives.
The Counter-Thesis: Overcapacity Cannot Be Regulated Away
The strongest argument against the new regime is the simplest: price wars are a symptom, and this policy treats the symptom. Excess capacity is the disease, and capacity is created by investment decisions, local-government incentives, and export expectations — none of which a cost-accounting standard touches. UBS's head of China autos research, Paul Gong, has said he expects the EV price war to continue "for years," a view grounded in the fact that capacity already built does not disappear because regulators disapprove of the prices it produces.
History offers support for the skeptics. China pledged to curb disorderly solar competition in July 2025; polysilicon prices still swung violently, and the industry's 2026 loss forecast exceeds its 2025 one. Administrative guidance can change pricing conduct at the margin, but it cannot force a factory to close or a local official to stop courting investment. If the underlying economics still reward volume over profit, producers will find ways to compete around the rules — through financing terms, software bundling, or trade-in subsidies that do not appear as list-price cuts.
This counter-thesis is serious enough that it defines the single signal that would falsify the structural-shift view advanced here. If, two quarters after the framework is in place, module prices and EV average selling prices have not stabilized and industry gross margins have not improved despite active cost investigations, then the regime change is cosmetic and the price wars remain a cyclical overcapacity problem that only exit can solve. Watch polysilicon and lithium-iron-phosphate cell prices, and the gross-margin guidance of Tongwei, Longi and BYD, as the report card.
What Comes Next
In the short term, expect volatility, not a straight line up. The August polysilicon rally showed that markets will bid a regulatory signal aggressively, then remember the oversupply. The same pattern is likely as the Price Law revision moves through consultation into drafting: announcements will lift sentiment, and inventory data will pull it back.
Over the medium term, the beneficiaries are the large, compliant incumbents with the scale to meet cost standards and the balance sheets to survive a slower volume game. The exposed are the smaller producers that competed on price alone, the state-owned power buyers facing higher equipment costs, and export-focused manufacturers walking into tougher trade barriers. Sectors to watch are the four named in the March notice: platforms, solar, batteries and EVs.
In the long term, the question is whether China can regulate its way to a competition model that rewards quality without suffocating the disruptive pricing that made its clean-tech industries dominant. The answer will not come from a press conference. It will come from whether the "1+1+N" framework produces a handful of enforceable cases that change behavior — or a stack of standards that producers learn to work around.
Shu Wei told the September 20 press conference that during the 15th Five-Year Plan period, authorities would "take the lead in launching cost investigations and price inspections against enterprises that carry out malicious low-price competition and disrupt production and business order, and deal with them strictly under the law."
The central judgment: Beijing has moved from asking its champions to stop fighting to building the legal machinery that makes fighting below cost a punishable act. That is a structural shift in how Chinese competition is governed. But a cost standard is a measuring stick, not an exit door — and until excess capacity leaves, the price wars will pause rather than end.
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