Monopolies Feel the Heat

　　After infant formula manufacturersannounced a price cut in August, 29-year-old WangDong decided to postpone buying a new car. Theannouncement to slash prices in China by up to 20percent was made by six milk powder companiessoon after the country’s economic planner, the NationalDevelopment and Reform Commission (NDRC),unveiled an antitrust probe. The probe’s price-slashingeffect boosted Wang’s confidence that a recentlylaunched investigation into the country’s auto sectorwould have similar results.

　　“If a probe can work on the milk powder price, itwould possibly influence the auto market as well,”said Wang, who is prepared to play a wait-and-seegame.

　　Wang is likely right. Recently, Xu Kunlin, head ofthe anti-monopoly bureau at the NDRC, said on a ChinaCentral Television (CCTV) program that the NDRCwould investigate industries that have an impact onthe lives of ordinary Chinese.

　　Putting the probes into perspective, many believethat they indicate China’s determination to enforceantitrust crackdown in order to maintain competitiveorder in the market.

　　Level playing fields

　　After a scandal involving contaminated milk andinfant formula manufactured by domestic companiesthat killed six infants in 2008, Chinese parentsrushed to snap up foreign brands, promptinga surge in the foreign firms’ market share inChina and an annual price increase of 30percent over the past years. On August 7 ofthis year, the NDRC announced fines totaling arecord 670 million yuan ($108 million) againstsix infant formula manufacturers, five of whichare foreign-invested, Mead Johnson Nutritionand Danone among the investors.

　　None contested the penalties.

　　While Chinese consumers are applaudingstricter enforcement, therecent increase in antitrust investigationshas aroused concerns for foreign companieswith operations in China.

　　In January, the NDRC imposed fines on severalTV-panel manufacturers, mainly Japanese and Koreancompanies. Recently, officials’ focus has shifted to theprices of foreign vehicles.

　　Some critics speculate that the recent antitrustaction is specially targeted at foreign companies, withReuters characterizing the situation as “a worseningrelationship between foreign companies and China’sarray of regulators.”

　　But local companies have also been affectedby the NDRC’s bolstered efforts. In June, domesticpremium liquor makers Moutai and Wuliangye werefined a total of 449 million yuan ($71.3 million) forforcing retailers to price fix.

　　“NDRC is not the only antitrust enforcementagency in China,” said Deng Zhisong, a lawyer fromT&D Associates in Beijing who disagreed with Reuters’interpretation. “In the 12 cases released by theState Administration for Industry and Commerce(SAIC), all the investigated are Chinese enterprises.”

　　“Investigations focus on monopolistic conduct,not the entities behind it,” Xu noted. “Anycompany that violates the law will be thoroughlyinvestigated, no matter what kind of enterpriseit is.”

　　Many LCD panel companies that wereinvestigated in China were also fined bythe European Commission in 2010 andtargeted in investigations by the UnitedStates.

　　Ministry of Commerce Spokesman ShenDanyang said that foreign-invested enterprises havebecome an important part of China’s economy andplayed an important role in China’s economic growthover the past 30 years after China’s reform and openingup. Most of them engage in law-abiding businesspractices; but if there are any acts involving violationsof the law, they should accept legal sanctions, he said.All recent antitrust probes serve the goal of establishingan equal and competitive market environment,Shen added.

　　Legal loopholes

　　As the NDRC has ramped up its activity, public speculationhas been sparked about which sector will be itsnext target. In a CCTV interview, Xu said petroleum,telecommunications, banking and the auto sectorscould also be investigated for antitrust violations.His words sent an inspiring message to the public. Foryears there has been widespread discontent about monopoliesin crucial sectors where state-owned enterprisesmaintain market dominance, fostered underadministrative protection and preferential policies.

　　“The enforcement of the Anti-Monopoly Law willface a lot of pressure since it will affect the interests ofmany large enterprises, which are usually closely connectedto local authorities,” said Liu Xu, a researcherat Tongji Intellectual Property and Competition LawResearch Center.

　　China’s Anti-Monopoly Law only became effectivein 2008 and was very low-key until the end of 2011,when it came down hard on two monopoly giants inthe telecommunications industry. However this investigationhas yet to yield any penalties.

　　Following Xu’s words, the telecommunicationsindustry is likely back on the NDRC’s antitrust agenda.It’s widely predicted that there will be a price slash in2013.

　　Compared with other countries’ competition lawsthat date back a century or more, China’s five-year-oldAnti-Monopoly Law still needs further development,especially on the relevant rules, Liu said. Otherwise, itwould leave loopholes through which various powerscould intervene.

　　“Under an imperfect anti-monopoly law, stateownedenterprises, private enterprises and foreigncompanies are all likely to exploit its loopholes,” Liusaid.