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Al Barry's avatar

My experience in China indicates that ferocious price wars are common. Years back a guest piece in HBR explained price wars as a strategy and used the example of the microwave oven appliance industry. State directed capital has proven to be directionally effective, but the allocation of capital, as you clearly explain, is not efficient. There is no incentive for local governments to constrain their support for a local business that has a multiplier effect for the local economy. Perhaps this is where private investors, risking their own funds, could provide market discipline that the local government cannot. Private, market focused, VC-PE-Angel investors, would stop funding the weaker competitors earlier than a local government.

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ASKaFOX's avatar

Interesting—two observations:

1. The idea of setting price floors was already tested by the China Association of Automobile Manufacturers, in the now-famous joint letter “汽车行业维护公平竞争市场秩序承诺书” co-signed by all major players.

Notably, the clause related to pricing floors was later removed—under pressure. But where did that pressure come from? My take: either the government had its hands tied, or it made a conscious choice to stay out.

2. Local government competition isn’t unique to China. Look at the U.S. or Canada—every time a foreign investor like Northvolt shows interest, provinces or states pull out all the stops to win the deal. And they tolerate failure—often more than they should.

But this margin of tolerance doesn’t necessarily improve the odds of picking a winner.

Conclusion: The real engine behind China’s industrial transformation lies elsewhere. Keep digging.

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