China Iron and Steel Association: Safeguarding the overall interests of the industrial chain and jointly resisting "involutionary" competition
Upholding the overall interests of the industrial chain and jointly resisting "involutionary" competition
China Iron and Steel Industry Association
In May, some automakers once again significantly lowered the prices of new energy vehicles, and the fear of a new round of "price wars" spread throughout the automotive industry. The China Association of Automobile Manufacturers quickly issued an "Initiative on Maintaining a Fair Competitive Order and Promoting Healthy Industry Development," emphasizing that "'price wars' seriously affect the normal operation of enterprises, impact the safety of industrial chain supply chains, and lead industrial development into a vicious cycle."
A relevant person in charge of the Ministry of Industry and Information Technology stated that they agree with and support the initiative proposed by the China Association of Automobile Manufacturers. The disorderly "price war" between enterprises is a typical manifestation of "involutionary" competition, which not only affects product quality, performance, and service levels but also harms consumer rights and interests and endangers the healthy and sustainable development of the industry; they will increase efforts to rectify "involutionary" competition in the automotive industry, cooperate with relevant departments to conduct law enforcement against unfair competition, adopt necessary regulatory measures, resolutely maintain a fair and orderly market environment, and effectively protect the fundamental interests of consumers.
In recent years, with the rapid development of new energy vehicles and the rise of new car-making forces, China's automobile production has repeatedly hit new highs, exceeding 30 million units in 2023-2024, and production is expected to continue to grow this year. While the scale continues to expand, the profit margin of the automotive industry has been declining year by year, which is inseparable from the frequent "price wars" in the automotive industry. According to data from the National Bureau of Statistics, the profit margin of the automotive industry was 7.3% in 2018, falling to 4.3% in 2024 and further declining to 3.9% in the first quarter of this year. It is understood that due to frequent "price wars," the overall retail losses in the new car market in the automotive industry in 2024 were close to 200 billion yuan, a shocking figure.
The automotive industry is a major steel-consuming industry for the steel industry and an important consumer of high-end steel products, such as automotive steel plates, silicon steel and other varieties are widely used in the automotive industry. In recent years, the rapid development of new energy vehicles has greatly boosted the demand for automotive steel, while profoundly changing the varieties, structure, and grades of automotive steel plates. The steel industry is actively adapting to these changes and continuously meeting the new requirements of the automotive industry for the quality and service of automotive steel plates. According to data from the China Iron and Steel Industry Association, the output of automotive steel plates by key enterprises in 2024 reached approximately 40 million tons, of which the output of cold-rolled automotive steel plates (including cold-rolled and galvanized ) was approximately 29 million tons.
Automakers' "price wars" have put immense pressure on upstream raw material suppliers, a sentiment deeply felt by steel companies, severely impacting their stable operations. According to steel mills, automakers have been pursuing extreme cost reduction in recent years, constantly demanding that steel mills lower the prices of automotive steel plates. Since last year, some automakers have demanded price reductions of more than 10% for steel plate supplies, far exceeding the capacity of steel mills to accept. In the current steel market environment, automotive steel plates, as a flagship product of leading steel companies, currently have almost no profit margin, yet automakers are still demanding price reductions from steel mills. Some automakers even leverage their own supply chain financial platforms, delaying payments to upstream companies like steel mills after receiving supplies, paying only after several months via corporate promissory notes. This shifts the financial pressure and costs that should be borne by the automakers onto their upstream suppliers, constantly extending supplier payment terms, leading to increased financial pressure on steel mills.
Meanwhile, the rapid rise of domestic brand new energy vehicle manufacturers has significantly impacted the traditional supply and demand pattern and supply chain model for automotive steel plates. In the past, steel mills, through early involvement (EVI), processing and distribution, and other models, have engaged in in-depth cooperation with automakers, emphasizing product quality, timely delivery, and after-sales service, forming a long-term, stable, and mutually beneficial supply chain model. However, recently, some domestic brand automakers have adopted bidding procurement for automotive steel plates, pricing them as ordinary steel products, leading to "involution" among steel mills, with the lowest bidder generally winning. Steel mills have reacted strongly to this, believing that automotive steel plates are high-value-added steel products that are "high-tech, high-difficulty, and high-input." The bidding model, which treats automotive steel plates as ordinary steel products, completely negates previous R&D investment and service systems, severely impacting steel mills' willingness to supply and hindering the continuous innovation of automotive steel plate products and the establishment of long-term stable supply models. The price-cutting practices of some companies are being adopted by more and more automakers, and the adverse effects on quality and R&D investment will soon be felt by consumers.
In contrast, global automakers, such as Japanese automakers, have established long-term, close, and stable cooperative relationships with their suppliers, ensuring the stable supply of raw materials and components. While striving to control costs, they also leave a certain profit margin for suppliers, ensuring the long-term stability of vehicle quality and the continuous iterative upgrading of new material research and development. For example, the procurement model between Toyota and Nippon Steel mainly includes regular negotiations and price adjustments, ensuring the reasonableness of procurement costs and stability under market fluctuations.
"Involutionary" competition is like a malignant tumor, seriously disrupting the fair competitive order of the market, distorting resource allocation and price signals, and hindering the innovative development of enterprises in the industrial chain and their ascent to the mid-to-high end of the value chain. In the past two years, the central government has attached great importance to the issue of "involutionary" competition. From the first mention of preventing "involutionary" competition at the Central Political Bureau meeting last July, to the proposal to comprehensively rectify "involutionary" competition at the Central Economic Work Conference at the end of last year, and then to the inclusion of comprehensively rectifying "involutionary" competition in this year's Government Work Report, the call to combat "involution" has become increasingly strong. In April this year, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Opinions on Improving the Price Governance Mechanism," proposing to "strengthen the coordinated cooperation of industry and enterprise self-discipline, social supervision, and government regulation" and "explore the establishment of a price supervisor system in important commodity spot trading venues and industry associations." Relevant national ministries and commissions have made frequent statements, emphasizing the comprehensive rectification of "involutionary" competition, and related industries, including the steel industry, are actively responding to the call.
The steel industry has made some achievements in strengthening self-discipline in recent years, such as steel enterprises resolutely implementing the operating principles of "production based on sales, not turning cash into inventory; production based on efficiency, not causing operational blood loss; sales based on cash, not turning cash into receivables" ("three certainties and three avoidances"), and the consensus of "self-discipline, production control, and price stability" is accelerating.
As a crucial basic raw material industry, the stable operation of the steel industry is closely related to the upstream and downstream of the industrial chain. Therefore, strengthening industrial chain self-discipline and creating a good situation of stable and coordinated development between upstream and downstream industries is imminent. The steel and automotive industries urgently need to reach a consensus and work together to break the "involution" and jointly promote the healthy development of the upstream and downstream of the industrial chain.
The comprehensive rectification of "involutionary" competition is a systematic project that affects the whole body. It is difficult for a single industry to escape the predicament of "involution." The steel and automotive industries must be based on their own industries, unify their understanding, and form a consensus. Both steel and automotive enterprises must recognize that industry interests are higher than enterprise interests, and enterprise interests stem from industry interests. They must accelerate the shift from "quantity-based" to "price-based" approaches and strengthen coordinated governance between upstream and downstream of the industrial chain.
For the steel industry, on the one hand, it is necessary to do a good job in its own supply guarantee, strengthen self-discipline in the automotive steel market, promote dynamic balance between supply and demand, and provide key support for the development and competitiveness of downstream industries; on the other hand, it is necessary to protect high-end automotive steel products and create reasonable added value based on scarcity. Regarding the account period model in which some auto companies owe payments, adhere to the industry's principle of "no payment, no delivery," and resolutely resist the bad behavior of delaying payments. In addition, it is necessary to strengthen communication and exchanges with downstream industries such as automobiles, strengthen supply and demand docking, and actively explore supply chain models that are conducive to the long-term stability and mutual benefit of the industrial chain.
For the automotive industry, it is necessary to strictly abide by the principles of fair competition and conduct business activities in accordance with the law; to take technological progress as the core driving force for cultivating competitive advantages; and to completely eliminate the behavior of relying on occupying upstream funds to maintain development. Comprehensively deepen exchanges and cooperation between enterprises and build a new pattern of industrial development based on cooperation and win-win results. Enterprises in the industrial chain should establish a sense of the overall situation, and especially leading enterprises should play an exemplary role, take the lead in opposing "involution," prevent unfair competition, and promote the healthy development of the industrial chain.
There are no winners in a "price war," and there is no future. We advocate that the steel and automotive industries should reach a consensus, hone their internal skills, strengthen self-discipline, and jointly break the "involution," using technological innovation to promote the healthy and sustainable development of the industrial chain, and taking practical actions to maintain a fair and orderly market order. Only in this way can the automotive and steel industry chains achieve "high-quality supply guarantee and mutually beneficial win-win results," truly achieve high-quality development, reflect the spirit of Chinese manufacturing, and contribute China's strength and wisdom to the healthy development of the world economy!
