The practice of prioritizing price over quality when bidding for construction projects in China remains an obstacle for many Chinese enterprises and the nation’s economic development.

An investigation by People’s Daily uncovered the evidence after interviewing more than 100 enterprises from six cities in three provinces.

China’s bidding law stipulates that the successful bidder should either meet the comprehensive evaluation criteria, or the substantial requirements and lowest bid price, but bid prices that are less than the cost are excluded.

“The price war is harsh on government or government-owned enterprise projects. For example, the first price [of automated fare collection equipment at each subway station] should be between 5-5.5 million RMB, but the successful bidder took it at 3.5 million RMB. That puts huge pressure on all of us, from supplier to manufacturers,” said deputy general manager Yuan Xin of Legate Intelligent Equipment, the largest subway automated fare collection equipment supplier.

Yuan added that the price war has forced companies from both upstream and downstream sectors to emphasize price over quality to continue making profits.

Apart from its negative effects on quality, many enterprises complain that the policy discourages enterprises from innovating, as research and development costs push up the bidding price, even though R&D also guarantees better product quality.

“We used to bid in a Zhejiang-based project, but they just wanted the cheapest price. How can we upgrade our system and be more innovative under such a bidding system?” questioned Chen Qiang, the chief financial officer of the Shuangliang Group.

But project operators say that the anti-graft campaign has made it harder to emphasize quality over price and accept more expensive bidders for fear that the higher price would be seen as possible corruption.