(Yicai) March 6 -- Leaders from China’s auto sector have voiced their concerns about “involution,” the excessive and self-defeating competition in the industry, after the government called on carmakers to curb such intense rivalry in its annual work report to parliament.

Competition in the auto industry is moving in a healthier direction, as carmakers are reaching a consensus and adjusting their strategies, said Feng Xingya, chairman of GAC Group and a deputy to the National People’s Congress. While the sector has always been highly competitive, inconsistent support policies in different regions have led to unfair cost advantages, he noted.

Involution refers to a situation where competition becomes counterproductive, leading to diminishing returns for all parties involved. In the case of China’s auto industry, it has taken the form of aggressive price cutting that saps carmakers’ earnings and technological progress.

To resolve the issue, coordination from all parties is needed, Feng pointed out, adding that once a consensus is achieved, resolving the problem will be easier. Ruthless competition not only erodes profits and eats into research and development spending, but can also affect product quality, making the business unsustainable in the long run, he said.

A price war in China’s car market is unlikely this year, with attention shifting more onto automotive features, such as self-driving technologies, according to He Xiaopeng, an NPC member and chairman of XPeng Motors. Yin Tongyue, an NPC deputy and chairman of Chery Automobile, also said the industry should shift from price competition to a focus on technological innovation, product quality, and customer service.

It has been no easy feat for China to become a global leader in the new energy vehicle sector, said Zhang Xinghai, founder of Seres Group and a national committee member of the Chinese People's Political Consultative Conference. But it still faces many challenges, and competition at home is particularly fierce in areas like pricing, technology, and ecosystems, he said.

Companies need to practice self-discipline and the government should strengthen its oversight to ensure the industry’s healthy growth, Zhang added. Lei Jun, an NPC deputy and founder of Xiaomi Group, agreed with the need to regulate involution-style competition. Technological breakthroughs, not unfair competition, are key to the industry’s development, he said.

Widespread price cuts dented auto industry profits last year, according to data from the China Passenger Car Association. But with government support, sales are expected to jump this year and the industry may start to see a glimpse of hope in overcoming involution, analysts at Citic Securities predicted in a recent research report.

The NPC and the CPPCC, together known as the Two Sessions, meet in Beijing each March to consider proposals and set the national political and economic agenda for the year ahead. The NPC opened yesterday and will run through March 11. The annual session of the CPPCC, the country’s top political advisory body, is being held from March 4 to 10.

Editor: Kim Taylor