China's top market watchdog has launched an investigation into third-party auto chip dealers, who are suspected of unfairly inflating prices as the global market faces shortages.

Last week, the State Administration for Market Regulation said it would enhance market scrutiny and crack down on illegal practices, such as hoarding, price gouging and collusion.

The regulator didn't name any companies that were being investigated.

A global shortage of chips that began last December has disrupted supply chains and the hardware sector worldwide. Carmakers were among the first and hardest hit by the ongoing chip shortage.

Several major carmakers have had to shut down some production lines because of the semiconductor chip shortage, which also had an adverse effect on sales.

China's auto market incurred less damage compared with European markets. But auto sales in China have declined in recent months, triggered by chip shortages.

The worldwide race to secure chips in the automotive sector and beyond has led to price increases and booming business for the middlemen who distribute electronic components. This has also created a fertile environment for fraud and bad behaviors.

According to Chinese industry insiders, most chip producers sell products through dealers with transparent prices. But different tiers of dealers have driven up prices before selling to clients. Some suppliers even broke pacts close to the delivery date and sold chips at prices several times higher to other clients.

According to a chip purchasing manager based in Zhejiang province, the prices of auto chips soared 10-70 times compared with last year.

Some distributors hoard chips, expecting to make more money, even though they know it's illegal.

The action of regulators comes just in time, a chip purchaser said, but serves only as a warning.

Ma Lianhua, a NEV industry observer, said that the investigation can stop the chaos caused by the chip shortages but cannot fundamentally change the situation. Because of the pandemic, rising material costs and the popularization of automobile intelligence, global chip producers are not supplying enough to satisfy demand.

Establishing complete semiconductor chip research, development and manufacturing systems should be the priority, said an industry insider.

Chinese chipmaker Horizon Robotics unveiled its latest auto chip Journey 5 last month, which attracted some Chinese carmakers, including Great Wall Motors, SAIC Motor, Changan and Li Auto.

Ma said that the production of domestic chips cannot only break the monopoly of international chip suppliers, but keep prices stable.