China’s official policy introduces new automobile industry price regulations: “Selling price lower than production cost” poses significant legal risks.

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On February 12, the State Administration for Market Regulation officially released the "Compliance Guidelines for Price Behavior in the Automobile Industry" (hereinafter referred to as the "Guidelines"), clearly stating that “actual ex-factory prices lower than production costs” carry significant legal risks. The guidelines were approved at the Administration’s bureau meeting on February 9, and took effect from the date of release.

The Administration emphasized in the announcement that currently, illegal practices such as failure to clearly mark prices and price fraud exist in the automobile industry, harming the interests of consumers and operators, undermining the fair-competition market order, and impeding high-quality industry development. The “Guidelines,” based on the current development reality of the automobile industry, further clarify boundaries of conduct, unify regulatory rules, guide auto manufacturers and sellers to operate legally and compliantly, and promote the formation of a market order with high quality, reasonable pricing, and healthy competition.

The “Guidelines” consist of five chapters and 28 articles, mainly covering the following five areas.

First, clarify overall principles and requirements. State the purpose, legal basis, and scope of the “Guidelines,” stipulate the basic principles price behavior should follow, and encourage industry associations to strengthen self-regulation and promote compliance with industry pricing practices.

Second, specify price behavior standards for auto manufacturing enterprises. These clarify pricing compliance requirements for all aspects from whole vehicle and parts production to pricing strategies and sales practices; enforce full-process price management, strengthen fair pricing constraints, regulate promotions and pricing, and crack down on unfair pricing practices in accordance with the law.

Third, clarify price behavior requirements for auto sales enterprises. Focusing on new car sales, emphasize regulating prominent issues such as failure to clearly mark prices or false promotions. Establish a risk alert mechanism, and encourage platforms to provide dual risk alerts (operational and consumer) for significantly low-price behavior.

Fourth, guide enterprises to strengthen internal compliance construction. Encourage manufacturing and sales companies to establish internal pricing compliance management mechanisms, including price decision making, sales contract management, internal supervision, price emergency response, risk prevention and control, and compliance training—covering the entire pricing process.

Fifth, supplementary provisions. Fully utilize the role of industry associations and guide the development of detailed implementation measures in line with the Guidelines.

In this regard, Secretary-General of the National Passenger Car Market Information Association, Cui Dongshu, stated that standardizing automobile industry pricing will drive high-quality development in the auto sector, greatly promote brand building, and facilitate a shift from “price competition” to “quality competition.” In the short term, Cui Dongshu believes that consumers are very sensitive to auto prices, and “price competition” will make consumers develop the habit of “waiting for further price reductions.” Regulating prices will provide consumers with a worry-free shopping environment and help mitigate hesitation in car purchases.

"Actual ex-factory prices lower than production costs" carry significant legal risks

Article 10 of the Guidelines explicitly lists nine types of price behavior that "carry significant legal risks," including those "aimed at backing out competitors or monopolizing the market" and "resulting in the actual ex-factory price being lower than production costs."

These include: ex-factory prices of vehicles or parts below production cost; disguised price reductions by using high-spec products as low-spec ones; actual prices falling below costs due to discounts or subsidies; and disguised price reductions through means such as over-delivery with under-invoicing, bulk purchase discounts, or artificially lowering price tags.

The new rules adopt a strict definition of "production cost," clearly including manufacturing cost and period expenses composed of management, financial, and sales expenses.

Full-chain coverage of manufacturing and sales

Chapter 2 of the Guidelines explicitly requires automobile manufacturers to implement full-chain price behavior management in areas such as sales of whole vehicles and parts and financial services, ensuring price conduct is standardized. Enterprises should establish clear and specific rebate policies, agree with dealers in advance by contract, and respect dealers’ rights to set prices independently.

Article 9 of the Guidelines explicitly lists four types of "price collusion behavior between whole vehicle manufacturers or between auto parts manufacturers" that carry “significant legal risks”, including fixing or changing vehicle and parts price levels, fixing or altering price fluctuation ranges, agreeing to adopt uniform pricing standards, etc.

Encouraging platform price anomaly monitoring, standardizing "pay-to-unlock" feature charges

The Guidelines state that automotive trading platforms shall fulfill their platform responsibilities according to law, and require all operators within the platform to comply with platform pricing standards. When a platform operator’s displayed price is significantly lower than the manufacturer's guide price or market price level, the platform operator is encouraged to promptly warn the relevant business operators to operate lawfully and in compliance, while alerting consumers of possible abnormal transaction risks.

Article 13 of the Guidelines explicitly states that automotive manufacturers shall standardize the charging practices of “pay-to-unlock” features. For functions with a free period, the free period and subsequent charging standards must be clearly communicated at the time of sale; consumers must be reminded again before the free period ends. For differentiated value-added functions that require payment, these must be clearly disclosed at the time of sale—otherwise they cannot be charged.

Encouraging enterprises to strengthen compliance

Chapter 4 of the Guidelines specifically provides guidance on internal compliance, encouraging manufacturing and sales companies to establish pricing compliance management mechanisms, including six components: price decision-making, sales contract management, internal supervision, price emergency response, risk prevention and control, and compliance training mechanisms.

The new rules require companies to supervise and review activities such as price setting, adjustment, and promotion, regularly evaluate pricing risks, and identify potential compliance risks. For pricing practices that may give rise to public opinion or collective complaints, companies should issue advance warnings and take appropriate risk prevention measures.

Risk Warning and DisclaimerThe market carries risks, and investment must be cautious. This article does not constitute personal investment advice, nor does it take into account individual users’ unique investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Any investment based on this is at their own risk. ```