Beijing turns to corporate credit system in fight against involution
The markets regulator (SAMR) is leveraging China's corporate credit system to combat involution-style competition.
Some context: SAMR maintains corporate credit files on all registered companies in China. The files – which record adherence to issues such as environmental regs, labor laws, and product quality – are visible to banks, government agencies, and prospective business partners.
- Companies with poor ratings face a cascade of penalties, such as exclusion from government procurement, ineligibility for subsidies, and restricted access to bank loans.
- Companies that remedy their misconduct can apply to have their credit rating restored.
On May 28, Xinhua reported that SAMR has launched an eight-month campaign calling for local SAMR branches to incorporate involution-style competition – such as unsustainable price cuts – into corporate ratings. The campaign also encourages regulators to:
- Increase inspections across involution-prone industries and publish the outcomes
- Make the credit restoration process more challenging
- Publicly name and shame violators
Get smart: The campaign poses a real threat to weaker firms that rely on aggressive discounting to survive.
- A damaged credit rating isn’t just reputational, it triggers harsh penalties which – for companies already operating on razor-thin margins – could prove existential.
What we’re looking out for: How stringently local SAMR branches enforce the campaign.
- Beijing's anti-involution rhetoric has so far outpaced action on the ground. Whether this campaign changes that dynamic will depend on whether regulators follow through with meaningful enforcement.