China Issues Cost Accounting Rules to Curb Industrial Price Wars

China's National Development and Reform Commission (NDRC) and the State Administration for Market Regulation (SAMR) have jointly issued a circular establishing standardized cost accounting rules for key industrial products to combat predatory pricing and irrational competition. Under the new rules, enforcement authorities will evaluate alleged below-cost selling primarily using an enterprise's individual production costs, relying on audited books, capacity utilization rates, and matching expenses. If individual costs cannot be determined, regulators may benchmark against industry-average costs calculated with a downward margin.

Fierce price wars across Chinese manufacturing sectors have eroded industry profits, curbed research spending, and complicated overseas trade relations. Previous anti-dumping and price regulations lacked explicit technical methodologies to establish whether a firm was selling below production cost. By providing a clear accounting framework for both individual corporate costs and sector-wide benchmarks, the new rules give market regulators concrete operational tools to penalize cutthroat price competition and shift market focus toward product quality and innovation.

China's National Development and Reform Commission (NDRC) and the State Administration for Market Regulation (SAMR) have jointly released a circular outlining cost accounting rules to tackle irrational and disorderly low-price competition in key industrial product sectors, according to state media reports. The regulatory directive aims to strengthen the institutional framework for enforcing China's Price Law, which prohibits business operators from engaging in unfair pricing practices such as predatory pricing. While existing laws ban sales below cost, authorities noted that prior regulations remained largely principled and lacked concrete, actionable standards for calculating production costs during anti-dumping or price-gouging probes. According to an NDRC official interpreting the measures, the circular clarifies the responsible entities, scope, and technical methodologies for cost calculation. As a foundational principle, regulatory assessments will evaluate an enterprise's individual production cost for a specific product. These individual cost calculations must rely on audited records or complete accounting documentation provided by the firm. The methodology mandates that calculated costs and expenses correspond directly to what the product sales price covers, while accounting for the impact of capacity utilization rates on per-unit costs. In circumstances where a company's individual production costs cannot be directly determined, the circular permits authorities to reference the product's industry-average cost, applying a designated downward floating margin. Industry-average costs are to be surveyed and formulated through either census or sampling methods by industry associations and relevant institutions, operating under the guidance of the NDRC, SAMR, and relevant sectoral authorities. The NDRC and SAMR will organize cost investigations when necessary, while provincial-level development and reform commissions and market supervision bureaus are instructed to carry out enforcement under national unified guidance. Officials emphasized that the policy seeks to encourage enterprise compliance, stimulate industry self-discipline, and redirect competition away from blunt price slashes toward innovation and higher product standards.