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Economy

View China’s Antitrust Law Enforcement Objectively

Sep 19 , 2014

In recent months, China’s antitrust legislation probes have caused some worries of western investors and media over the fairness and transparency of the law enforcement. The American Chamber of Commerce in China, in its recent report, airs its grievances over a perception that multinational firms are under “selective and subjective enforcement” using “legal and extra-legal approaches”. Western media is exaggerating the dissatisfaction of some big multinational companies.

Yu Xiang

Under great pressure from lobbyists, U.S. Treasury Secretary Jacob Lew raised his concern. In his letter to a Chinese official, Lew warned that a spate of antitrust investigations against foreign companies could have serious implications for relations between the two countries,

But, in fact, the saying that China’s probes are selective towards foreign companies is not objective and is indeed biased.

First of all, Chinese regulators are targeting more of China’s domestic firms, rather than foreign companies. Ranging from drinks manufacturers and gold retailers to salt producers, the National Development and Reform Committee (NDRC) has so far investigated 335 enterprises and industry associations on monopoly charges. Of those investigated, only 33 of them were foreign companies. The number of investigated foreign companies makes up just 10% of those targeted by NDRC’s antitrust investigations.

Secondly, the launching of antitrust probes is a tactic that China learned from western countries to use legal actions to fight market manipulation.

After more than 30 years of reform, China is focused on deepening reform along the track of the rule of law. The new Chinese leaders intend to use the rule of law to take reform to new heights. October’s upcoming plenary session of the CPC Central Committee is said to take the rule of law as its central theme, which marks the first time in recent history. With China’s reform entering “deep-water zone”, the rule of law is crucial to the success of the current reform campaign and future development.

China’s Antitrust Law was introduced in August 2008; but specific law enforcement was insufficient. Since the new Chinese leadership came into office, more antitrust activities by China’s regulatory bodies were seen over the last eighteen months than the previous four years. China’s stepped up enforcement of its six-year-old antitrust law sends the message that China is making more efforts to put its laws to work.

Using the antitrust law to curb anti-competitive behavior and increase the economic efficiency of markets is a popular practice in western countries, especially in the U.S. and Europe. As early as 1890, the United States passed its first competition law, the Sherman Act. The Sherman Act attempted to outlaw the restriction of competition by large companies, who co-operated with rivals to fix outputs, prices and market shares, initially through pools and later through trusts. Europe had its competition law in the 1920s. Germany enacted its first anti-cartel law in 1923 and Sweden and Norway adopted similar laws in 1925 and 1926 respectively. Nowadays, China is using western countries’ way to deal with market failures, which is what western countries hope to see and which deserves encouraging.

Thirdly, launching antitrust probes is not designed to protect the domestic market. If it were, it would be hard to explain why China established the Shanghai free trade zone, which is meant to open up more economic sectors to competition and test changes such as currency liberalization, market-determined interest rates, and free trade. China’s Premier Li Keqiang has reassured foreign investors that foreign capital is still welcome and that they would be treated equally as their local counterparts. The Chinese government will do what it promises.

Finally, promoting consumer welfare becomes a new duty for government bodies like the NDRC. The cartel and other anti-competitive activities have done harm to China’s fair market environment and have already incurred sizeable consumer dissatisfaction. Already, Chinese consumers are paying much higher prices on the same products than their U.S. and European counterparts. Thus, launching antitrust probes is warmly welcomed by ordinary Chinese citizens.

China’s antitrust law enforcement is undeniably at the initial stage. There is a lot China should learn from the U.S. and European experiences for further improvement. Specifically, the following three aspects should be focused on:

  • Improve antitrust efficiency. The micro-economic objective of the regulators should focus on protecting the rights of consumers. The antitrust law enforcement should let consumers benefit from the investigations. The macro-economic objective is to improve the efficiency of the Chinese economy and to ensure fair competition. Launching antitrust probes in a campaign-oriented way is harmful in the long run.
  • Encourage consumers and enterprises to file lawsuits against monopoly firms. The launching of an investigation should be based on well-grounded complaints and evidence.
  • Increase investigative transparency. Investigation procedure should be transparent to the public, especially when the cases are related to state-owned enterprises. In order to reduce suspicion and criticism of regulators’ handedness and partiality, all cases should be settled openly and with disclosure of wrongdoings in the media.

In short, there are reasons to believe that China’s market environment purified through antitrust probes is helpful for foreign and Chinese companies to compete in a fair market. Ultimately, foreign and Chinese consumers will all benefit from this healthy competition in the Chinese market.

Yu Xiang is an Associate Fellow at the China Institutes of Contemporary International Relations.

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