China curbs auto price war with ban on below‑cost car sales

China’s market supervisor has imposed a new restriction designed to end an extended cycle of deep discounts in the passenger vehicle market by outlawing below‑cost sales. The finalized guidance tightens the definition of cost to capture factory spending plus administrative, financing and distribution-related expenses, closing loopholes firms used to justify heavy rebates and aggressive markdowns. That change removes a common tactic automakers and dealers used to chase market share at the expense of industry profitability. In practice, manufacturers that relied on loss-leading pricing to drive volume must now rethink incentives, trade promotions and cross‑model subsidy strategies. Dealers who have depended on steep discounts to clear inventory will face narrower margins and will likely press manufacturers for different support mechanisms. Investors are likely to view the policy as supportive of margin recovery across the supply chain, though consumer-facing prices could rise modestly in the near term. The measure provides regulators a clearer legal tool to challenge predatory pricing and complex discount schemes, increasing the risk of enforcement actions against offenders. Smaller, lower‑capitalized companies that built growth on price undercutting could be particularly vulnerable unless they find cost efficiencies or differentiated propositions. Larger groups with diversified operations and stronger balance sheets are better placed to absorb the adjustment and may consolidate share as rivals falter. The government’s timing suggests a priority on stabilizing a strategically important sector and limiting spillovers to employment and finance. Ultimately, the market impact will hinge on how vigorously authorities apply the rules and how quickly firms shift pricing, promotional strategies, and dealer compensation structures.