China’s top leadership vowed on Tuesday to tighten oversight of aggressive price-cutting by domestic firms, according to state news agency Xinhua, as the country continues to grapple with stubborn deflationary pressures.

Widespread overcapacity among manufacturers and deep discounts aimed at clearing excess inventory have triggered price wars, which are increasingly affecting consumer behaviour.

Analysts warn that this trend could lead to further price declines, heightening fears that deflation could become entrenched and obstruct efforts to stabilise the $19 trillion economy, Reuters news agency reports.

“Enterprises engaging in disorderly low-price competition must be regulated in accordance with laws and regulations,” according to a meeting of the Central Financial and Economic Affairs Commission, as quoted by Xinhua.

The commission, which plays a central role in shaping economic policy for the ruling Communist Party, is chaired by President Xi Jinping.

“Businesses should be guided to improve product quality and support the orderly phasing out of outdated production capacity,” the Xinhua report went on to add.

Data released on Monday revealed that manufacturers are cutting prices to lure buyers, as US President Donald Trump’s escalating tariffs cast doubt on the long-term prospects of selling to the United States, the world’s largest consumer market, while domestic demand continues to falter.

Although new orders saw a slight increase, factory gate prices stayed sluggish, according to the data, indicating the economy may be caught in a cycle of continuously falling prices.

A front-page editorial in Sunday’s edition of the Communist Party’s official newspaper, People’s Daily, attracted widespread attention by urging China’s economy to “break free from ‘rat race-style’ competition” among companies.

The article concluded that relentless price-cutting promotes harmful competition that goes against economic principles and results in clear negative impacts on the economy.