Price war sparks EV financial crisis concerns in China

BYD, the world's largest electric vehicle (EV) manufacturer, is facing growing challenges from an intensifying price war and a change in supplier payment regulations in China, raising market concerns about the company's financial stability.
On May 23, the Shenzhen-based EV maker initiated a price war in China by offering discounts of 10 to 30%. It priced some affordable models under 150,000 yuan (US$20,890), and the Xia MPV (multi-purpose vehicle) at around 200,000 yuan. It also offers its Ocean range's Seagull at a starting price of 55,800 yuan, down from the official guide price of 69,800 yuan.
BYD's Hong Kong-listed shares have fallen by 15.5% from their peak of HK$155 (US$19.7) on May 23. The company's market cap has decreased by some US$22 billion over the period.
BYD executive vice president Stella Li told Bloomberg in an interview on June 12 that the 'very extreme, tough competition' in the Chinese EV market is unsustainable.
Li did not say whether BYD would scale back its discount program, but she stated that the company will invest up to $20 billion to expand its operations in Europe over the next few years. She highlighted Germany, the United Kingdom and Italy as BYD's key European markets.
'If we decide to do something, we put all our resources behind it,' she said, referring to the company's commitment to after-sales service in Europe. 'We want to ensure it's successful in the long run.'
Last October, the European Union imposed tariffs ranging from 17% to 35.3% on Chinese EVs (BYD: 17%, Geely: 18.8%, SAIC and others: 35.3%). China suggested setting minimum prices for the EVs it ships to the EU. Both sides are still negotiating the matter.
In March, BYD said it is considering setting up its third European assembly plant in Germany. It has a factory in Hungary and is building another in Turkey.
When BYD announced its price cuts on May 23, one of its rivals warned of a possible Evergrande-like debt crisis in China's auto sector on the same day. (Evergrande is China's highly indebted property company that has come to epitomise the sector's ongoing crisis.)
'An Evergrande of the auto industry already exists, though it has yet to explode,' Wei Jianjun, chairman of Great Wall Motors, said in an interview without naming any company.
'The current automobile industry is facing a serious problem of being coerced by capital,' Wei said. 'Some automakers are addicted to burning money for market share.'
He said some Chinese automakers over-rely on financing from the capital market to boost production scale and market share, but ignore their profitability and technological innovation.
He said these firms' capital chains will break if the market environment changes. He stated that the bankruptcy of any large auto firm would result in many people losing their jobs, harm upstream and downstream companies, and negatively impact the Chinese economy.
Li Yunfei, general manager of BYD's brand and public relations division, responded to Wei's comments in a Weibo post on May 30.
'Following the stunning comments made by Great Wall Motors' Wei, many articles and videos said BYD is an Evergrande in the auto sector,' Li said. 'I feel confused and angry, and find these comments laughable.'
'If BYD's debt-to-asset ratio (70%) is a sign of high risk, are Ford (84%), General Motors (76%), and Geely (68%) all at risk?' he said.
He said many malicious commentators ignored that BYD's interest-bearing debts and accounts payable are lower than many other players. He added that Chinese EVs have become mainstream products overseas and will continue to see good prospects.
The Ministry of Industry and Information Technology (MIIT) said on May 31 that automakers should avoid disorderly price wars and maintain fair competition.
The People's Daily commented that consumers would not benefit from price wars, which would drive automakers to use low-quality parts, reduce after-sales service and cut research and development expenses. Citing industry data, the newspaper reported that the average net margin of Chinese automakers fell to 4.3% in 2024, down from 5% in 2023.
For 2024, BYD's net profit rose 34% to 40.3 billion yuan, while revenue grew 29% to 777.1 billion yuan.
At the end of 2024, the company's total debt rose 10.3% to 584 billion yuan, and its total assets increased 15.3% to 783 billion yuan. Its debt-to-asset ratio, or debt ratio, fell 3.2 percentage points to 74.64%.
For the same period, Nio, a Shanghai-based EV maker, had a debt ratio of 87.45%, and Great Wall Motors' was 65.96%. Heavily indebted Chinese property developers have around 60-90% debt ratios.
However, accounting consultancy GMT Research said in January that BYD's net debt might be 323 billion yuan as of mid-2024, contrasting with the official figure of 27.7 billion yuan.
It stated that the company's Dilink platform, a supply chain financing system, may conceal a substantial amount of off-balance sheet debt. In other words, BYD may have delayed supplier payments.
Wang Guo-chen, an assistant researcher at Taiwan's Chung-hua Institute for Economic Research (CIER), said BYD is only one of the many Chinese firms struggling to survive in an oversupplied market.
On March 25, China's State Council amended the Regulation on Ensuring Payments to Small and Medium-Sized Enterprises, requiring companies to pay their suppliers within 60 days, effective June 1.
BYD said on June 11 that it will standardize its payment period for suppliers to 60 days. Observers said automakers may thus report higher debt ratios in the second half.
Read: Sugon, its suppliers hit by US sanctions, to merge with Hygon

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Asia Times

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The woman quietly leading a BRICS bank revolution

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At the ceremony, Lula praised the NDB as a partnership of emerging nations 'very different from traditional banks dominated by developed countries,' and expressed high hopes that it could help create a world with less poverty and inequality under Rousseff's watch. Her presence at the G20, alongside leaders of the world's largest economies, signaled the NDB's growing profile on the global stage. Earlier in 2024, Rousseff had even traveled to Russia to attend the St Petersburg International Economic Forum, where de-dollarization and alternative financial architectures were key themes. Rousseff has not shied away from using her political stature to give the NDB a seat at tables traditionally dominated by Western-led institutions. She has signaled to members and prospective members alike that the NDB under her leadership is open for business. Brazil was a key testing case for the NDB's rising emergency finance efforts. In May 2024, following devastating storms and floods in southern Brazil, she announced that the NDB would extend an aid package of $1.1 billion to rebuild infrastructure in Rio Grande do Sul state. The funding, coordinated in partnership with Brazilian public banks, was earmarked for everything from small business recovery to new roads, bridges and sanitation systems in the disaster-hit areas. Such a rapid mobilization of over a billion US dollars was unprecedented for the NDB in response to a member's natural disaster. Under her leadership, the NDB has aligned closely with China's priorities, reflecting the NDB's utility as a tool for China to use international institutions to achieve revisionist goals. During Rousseff's first weeks in Shanghai, Brazil and China reached an agreement to set up a clearinghouse to conduct trade in Chinese yuan and Brazilian reals, thereby reducing their dollar dependence. In May 2025, the People's Bank of China and Brazil's Central Bank signed a renewed local-currency swap agreement worth 190 billion yuan, about $27.7 billion, valid for five years and extendable. In 2024 and so far in 2025, China-Brazil trade has increased by about 10% year to year, with Rousseff being instrumental in China-Brazil dealings. Lula's government has treated the NDB as an extension of its strategic partnership with China, a venue through which Chinese capital can more safely flow into Brazilian projects under multilateral cover. By steering the bank to focus on local-currency lending and alternative payment systems, Rousseff indirectly aided Moscow's goal of a financial safety net outside of the US's reach. However, Russian entities themselves have not received new NDB loans since the Ukraine war began. 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Critics in Brazil's right-wing opposition accused Lula of provoking the US and aligning too closely with autocracies, while her 2016 impeachment and praise of China's governance model made her a controversial figure abroad. Externally, Rousseff had to manage the fallout from Russia's war in Ukraine, which forced the NDB to suspend Russian loans to maintain compliance with global markets. This geopolitical balancing act, along with rising interest rates, constrained the bank's ability to expand lending. Nonetheless, the NDB preserved its AA+ rating from S&P Global, even as Rousseff faced pressure to prove that an emerging-market-led bank could operate with high standards under global scrutiny. Rousseff was originally expected to step down in July 2025, with Russia set to nominate her successor as part of BRICS' rotating presidency system. But due to sanctions and geopolitical constraints, which could have potentially tanked the BRICS' prospects and more neutral image as a viable international bloc, Moscow backed her continuation. In March 2025, the NDB's Board of Governors unanimously reappointed Rousseff for a second term. Rousseff has redefined the NDB's presidency and helped elevate the bank as a key lever in China and the Global South's revisionist goals against Western financial dominance. Under her leadership, the NDB has deepened alignment with Beijing's broader strategy of building alternative global governance institutions, ones that reflect multipolarity and reduce dependence on the US-led financial institutions. Rousseff's enthusiastic support for de-dollarization, promotion of yuan- and real-denominated lending, and facilitation of Chinese-backed infrastructure in Latin America, particularly in Brazil, positioned the NDB as a complement to China's Belt and Road Initiative in a post-Pax Americana order. 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To date, and not without criticism, Rousseff has been instrumental in positioning the NDB as a challenger to Western financial hegemony, offering real competition and choice to countries in the Global South previously subjugated by an often oppressive world lending system. And with that helped to usher in a quiet but consequential revolution in the international order. Joseph Bouchard is a journalist and researcher from Québec covering security and geopolitics in Latin America. His articles have appeared in Reason, The Diplomat, The National Interest, Le Devoir and RealClearPolitics. He is an incoming PhD student in politics at the University of Virginia and SSHRC doctoral fellow on Latin American politics.

Asia Times

8 hours ago

• Asia Times

China's industrial policy has an unprofitability problem

Analyzing American economic policy isn't that interesting these days, except perhaps as a grim spectacle. So I've been thinking a little about Chinese economic policy. China's leaders leave much to be desired, but to their credit, they still think economic policy is about strengthening their nation, enriching their people and improving their technology instead of pursuing domestic culture wars by other means. Anyway, China has a lot of policy initiatives right now — cleaning up the fallout from the real estate bust, retaliating against America's tariffs, improving their health care system, and so on. But their most important policy — and the one everyone talks about here in the US — is their big industrial policy push. If you want to understand Chinese industrial policy, I recommend starting with Barry Naughton's free book, 'The Rise of China's Industrial Policy: 1978 to 2020.' The basic story is that until the mid-to-late 2000s, China didn't have a national industrial policy as such. It had a bunch of local governments trying to build up specific industries, usually by attracting investment from multinational companies. And it had a central government that tried to make it easy for local governments to do that, using macro policies like making sure coal was cheap, holding down the value of the Chinese currency in order to stimulate exports and so on. But it was not until the end of Hu Jintao's term in office — and really, not until Xi Jinping came to power — that China developed a national industrial policy, in which the government tries to promote specific industries using tools like subsidies and cheap bank loans. If you want a good primer on just how big those loans and subsidies are, and which industries they're going to, I recommend CSIS' 2022 report, 'Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective.' It's a lot. Here are the authors' estimates from 2019: Source: CSIS In some respects, this policy was successful. For example, it moved China up the value chain — instead of doing simple low-value assembly for foreign manufacturers as in the 2000s, China in the 2010s learned to make many of the higher-value components that go into things like computers, phones and cars, as well as many of the tools that create those goods. This had the added security benefit of making China less dependent on foreign rivals for key manufacturing inputs. China has doubled down on its centralized, big-spending industrial policy since then. In 2021-22, China suffered a huge real estate bust, crippling a sector that had accounted for almost one-third of the country's GDP. China's leaders responded by doubling down on manufacturing, encouraging banks — essentially all of which are either state-owned or state-controlled — to shift their lending from real estate to industry. In 2023, you saw charts like this: Source: Shanghai Macro via Bert Hofman Along with this industrial policy, you saw a massive surge of Chinese-manufactured exports flowing out to the rest of the world. The most recent export surge has been labeled the 'Second China Shock', but in fact, the trend was already headed in that direction well before the pandemic: Source: CSIS China's competitive success in manufacturing industry after industry has been nothing short of spectacular. In just a couple of years, China went from a footnote in the global car industry to the world's leading auto exporter: Source: Visual Capitalist Obviously, this export surge is the most important way that people in countries like the US experience the results of China's industrial policy. So most commentary on the policy has focused on exports, trade balances and so on. But it's important to remember that most of what China is producing in this epic manufacturing surge is not being exported. For example, take cars. Even though China is now the world's top car exporter, most of the cars it makes are sold within China: Source: Brad Setser China's auto industry is actually unusually domestically focused, compared to other auto powerhouses like Germany, South Korea, and Japan: Source: Bloomberg via Noahopinion In fact, this pattern holds across the whole economy. For an industrialized country, China is unusually insular — its exports as a percent of its GDP are higher than the US, but much lower than France, the UK, Germany, or South Korea: Source: World Bank Most of China's enormous manufacturing subsidies are not actually for export manufacturing; they're for domestic manufacturing. The rest of the world is just getting a little bit of spillover from whatever Chinese companies can't manage to sell domestically — except for a country as huge as China, a 'little spillover' can seem like a massive flood to everyone else. And here lies the rub. Essentially, China is huge and most of its trading partners are pretty small. There's a limited amount of Chinese cars, semiconductors, electronics, robots, machine tools, ships, solar panels, and batteries they can buy. And on top of that, some of China's biggest trading partners are levying tariffs against it. For most Chinese manufacturers, export markets are simply not going to replace the domestic market. And this means that Chinese manufacturers will be forced to compete against each other for a domestic market whose size is relatively fixed, at least in the short term. That competition will eat away at their profit margins. In fact, this is already happening. Vicious price wars have broken out in the Chinese auto industry, and even the country's top carmakers are under extreme pressure: Chinese carmakers' price war is putting the industry's balance sheet under strain…Current liabilities exceeded current assets at more than a third of publicly listed car manufacturers at the end of last year…China's leading carmakers are being forced to…fight for market share amid heavy [price] discounting… The dominant electric-vehicle maker BYD is deepest in negative territory with its working capital, followed by rivals Geely, Nio, Seres and state-backed BAIC and JAC, while the total net current assets of 16 major listed Chinese carmakers [saw] a 62 per cent decline from…the first half of 2021… 'Given the current downward trend, China's auto industry is expected to enter an industry-wide elimination phase . . . in 2026 at the latest,' [an analyst] warned. 'During the process, some companies will die of liquidity crises.'… BYD recently came under pressure to defend its financial numbers and business practices after Wei Jianjun, chair of rival Great Wall Motor, called for a comprehensive audit of all major domestic carmakers…'An Evergrande exists in [China's] auto sector at the moment — it just hasn't blown up,' he told local media, raising the spectre of the industry following the property sector into a spiralling debt crisis. How can these mighty world-conquering automakers be skating on the edge of bankruptcy when the government is pouring so many subsidies and cheap loans into the auto industry? The answer is simple: China's government is paying its car companies to compete each other to death. The Chinese government pays a ton of different car companies to make more cars. Chinese banks, at the government's behest, give cheap loans to a bunch of different car companies to make more cars. So they all make more cars — more than Chinese consumers want to buy. So they try to sell some of the extra cars overseas, but foreigners only buy a modest amount of them. Now what? Unsold cars pile up, prices are cut and cut again, and all the car companies — even the best ones, like BYD — see their profit margins fall and fall. It's not just autos, either — similar things are happening in solar, steel, and a bunch of other industries. Manufacturing profit margins are plunging across China's entire economy: Source: Bloomberg via Noahopinion A Chinese buzzword for this sort of excessive competition is 'involution.' Why is this bad, though? Who cares about profit, anyway? After all, China's workers are getting jobs, and China's consumers are getting a ton of cheap cars and other manufactured stuff. So what if rich BYD shareholders and corporate executives take a loss? Well, in fact, there are several problems. The first is macroeconomic. Price wars across much of the economy create deflation. In fact, China is already experiencing deflation: China's consumer prices fell for a fourth consecutive month in May…with price wars in the auto sector adding to downward pressure…The consumer price index fell 0.1% from a year earlier…CPI slipped into negative territory in February, falling 0.7% from a year ago, and has continued to post year-on-year declines of 0.1% in March, April, and now May…Separately, deflation in the country's factory-gate or producer prices deepened, falling 3.3% from a year earlier in May[.] A lot of this is probably due to weak demand from the ongoing real estate bust, but price wars prompted by industrial policy will make it worse. Deflation will exacerbate the lingering problems from the real estate implosion. Debts are in nominal terms, meaning that when prices go down, those debts become harder to service. More of the debts go bad, and banks get weaker — all those bad loans on their books make them less willing to make new loans. Consumer debts get more onerous too, making consumers less willing to spend (and consumers, unlike banks, are not government-controlled). This effect is called debt deflation. On top of that, a massive wave of bankruptcies could cause a second bad-debt crisis on top of the one that's already happening from real estate. Wei Jianjun of Great Wall Motor has been warning of exactly this happening. In fact, we can already see Chinese banks beginning to slow the torrid pace of industrial loans they were dishing out a couple of years ago: Source: Bloomberg via Noahopinion All of this could extend China's growth slowdown for years. There are also microeconomic dangers from overcompetition. Competition could spur Chinese companies to just innovate harder. But if China's top manufacturers are constantly skating on the edge of bankruptcy, that means they'll have fewer resources to invest in long-term projects like technological innovation and new business models. Basically, prices are signals about what to build, and China's industrial policies are sending strong signals of 'build more stuff today' instead of 'build better stuff tomorrow.' There's also the danger that China's government won't allow the price wars to end. Ideally, you'd want these price wars to be temporary; eventually, you'd want weak producers to fail, allowing top producers to increase their profitability. This good outcome relies on the government eventually cutting subsidies and letting bad companies die. But letting bad companies die means a bunch of people get laid off. Bloomberg recently had a good report about the political pressures on the Chinese government to keep the subsidies flowing: Local leaders laden in debt are rolling out tax breaks and subsidies for companies, in a bid to stave off the double whammy of job and revenue losses…For China's top leaders, employment is an even more politically sensitive issue than economic growth, according to Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute's Center for China Analysis…Already there are signs the weakening labor market is becoming a touchy subject: One of China's largest online recruitment platforms Zhaopin Ltd. this year quietly stopped providing wage data it's compiled for at least a decade. Already, Bloomberg reports that economic protests are proliferating across the country; with the real estate crisis ongoing, the government will be under even more political pressure to keep manufacturing employment strong. This could mean keeping crappy companies on life support. These so-called 'zombie' companies, kept alive only by a never-ending flood of cheap credit, were a big part of why Japan's economy slowed down so much in the 1990s. So this is the scenario where China's industrial policy ends up backfiring. Subsidies and cheap bank loans dished out to high-quality and low-quality companies alike could flood the market with undesired product, spurring vicious cutthroat price wars, destroying profit margins, exacerbating deflation, and generally making the macroeconomic situation worse. And then China's government could double down by trying to protect employment, by never halting subsidies for companies that fail. Usually, when we think of the costs of industrial policy, the main thing we think about is waste, and there is certainly plenty of waste in China's current approach. But China's experience is illuminating a second problem with industrial policy — the risk of vicious price wars and deflation due to the subsidization of too many competing companies. This article was first published on Noah Smith's Noahpinion Substack and is republished with kind permission. Become a Noahopinion subscriber here.

RTHK

14 hours ago

• RTHK

US stocks end week mostly lower

US stocks end week mostly lower Analysts pointed to a pullback in some chip companies and uncertainty over the Middle East. Photo: AFP Wall Street stocks mostly fell on Friday amid weakness in some semiconductor shares as markets weighed the latest developments in the ongoing war between Iran and Israel. Markets rose after US President Donald Trump's remarks on Thursday on the Middle East, allowing for up to two weeks before possible US military action against Iran. But on Friday afternoon, Trump expressed doubt that European powers would be able to help end the Iran-Israel war, telling reporters, "Europe is not going to be able to help in this." The Dow Jones finished up 0.1 percent at 42,206. But the S&P 500 shed 0.2 percent to 5,967, while the Nasdaq fell 0.5 percent to 19,447. Adam Sarhan of 50 Park Investments described the market as on edge in anticipation of new headlines on trade actions or the Middle East. "We have a situation where tensions in the Middle East missiles are still firing, there's no ceasefire and there's a fear that the US may be involved," Sarhan said. In light of uncertainty on Iran and other areas, "investors are de-risking, they're selling stocks ahead of the weekend," Sarhan said. Fed governor Christopher Waller told CNBC that central banks should "look through tariff effects on inflation" and focus instead on the underlying trend in price increases. The Fed earlier this week voted to keep interest rates unchanged, as Fed Chair Jerome Powell said the central bank could wait to see if Trump's tariffs revive inflation. Among individual companies, Kroger jumped nearly 10 percent after the supermarket chain raised its sales forecast. However the company refrained from lifting other projections, saying the macroeconomic environment remains "uncertain." CarMax surged 6.6 percent after reporting a jump in quarterly profits as the company's CEO pointed to a "very large and fragmented" used car market that "positions us to continue to drive sales, gain market share and deliver significantly year-over-year earnings growth for years to come." (AFP)