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Anti-trust Move Essential for Market Economy

Sep 11 , 2014
  • Zhang Monan

    Senior Fellow, China Int'l Economic Exchanges Center

China’s anti-trust investigations of Mitsubishi, Qualcomm, Microsoft, Chrysler, Audi and Mercedes Benz have aroused suspicions from international media outlets. They claimed that the moves were selectively targeted at foreign companies to protect Chinese enterprises and their products.

This allegation is unfair.

Zhang Monan

The latest moves taken by the anti-trust authorities were part of China’s effort to regularize its anti-trust administration, a must for furthering its market-oriented economic restructuring. It is a common practice around the world to forbid any enterprise, foreign or domestic, from practicing monopoly to the detriment of consumers’ interests. The recent anti-trust investigations in China covered food, medicine, telecommunications, Internet services and automobile, all of which are closely related with the public’s daily life.

Take the automobile industry. It is an indisputable fact that cars China imports from overseas are the most expensive in the world. A Range Rover 5.0T is priced at RMB 2.798 million when exported to China and soars to RMB 3.2 million in the end market. However, it sells at an equivalent of only RMB 1.052 million in Japan and RMB 1.036 million in Germany. In Britain, its home country, the deluxe SUV can be had for a mere RMB 835,000; while in the United States it’s even cheaper at RMB 833,000.

Such price monopoly by transnational giants stemmed from the fact that China has never really gained the right of setting prices in foreign trade. In the automobile trade, transnationals such as Audi, BMW and Mercedes Benz use the price-setting right they obtained through monopoly to control the market and the sales of auto parts. For instance, the “parts-to-unit” ratio of the Mercedes Benz C-class model of   W204 is as high as 1273%, in other words, the aggregate price of all the parts of one W204, when sold for repair and maintenance, is equivalent to that of 12 vehicles of that model.

In the telecommunications sector, the situation is similar. Qualcomm has allegedly abused its intellectual property rights to exploit consumers and stave off competition by charging unreasonably exorbitant prices. Microsoft has been suspected of monopolizing the market by raising the prices of its applications in the name of “anti-piracy” efforts.

What these global giants have done goes against the principle of fair market competition.

Anti-trust law enforcement has long been a regular administrative work in Europe and the United States. As the world’s largest economy and the most mature market economy, the US has practiced an anti-trust system for more than 100 years, during which constant contradictions and improvement led to a dynamic coexistence of monopoly and competition. According to its statistics, the anti-trust bureau of the Department of Justice made 92 anti-trust investigations in 2013, sixty-five of which involved merger and acquisition while 25 were related to attempts to hamper market competition.

The European Union began anti-trust legal actions only 10 years ago but the strength and extensiveness of the moves have been unparalleled in the world. Nearly all famous companies, ranging from auto and pharmaceutical makers to Internet and telecom service providers, have been investigated or penalized. Anti-trust laws in EU countries are usually called the law on competition. They are implemented to prohibit market monopoly and encourage competition so that all enterprises can develop in a fair, open and efficient environment. These laws and practices are applicable to all countries, whether they are developed or developing, including China.

Practices throughout the world have proven that the anti-trust campaign should start with those industries that are prone to monopoly by encouraging competition among all state-owned, private and foreign companies on equal footing. Like other countries, China’ anti-monopoly moves are also indiscriminate. As early as 2011, the National Development and Reform Commission, one of China’s major anti-trust administrations, penalized China Telecom and China Unicom with hefty fines for their monopoly behaviors.

Since China launched the Anti-monopoly Law six years ago, anti-trust investigations have covered both domestic and foreign-invested companies. All enterprises are equal under the law. There has never been discrimination against foreign companies. For instance, in China’s “first anti-trust case” in 2013, the liquid-crystal panel makers that received “astronomical figure” fines included both foreign – such as Japanese and Korean – companies and Taiwan-based Chinese companies. In the same year, the penalties for Maotai and Wuliangye – the two most popular liquors in China – were no less lenient. Numerous domestic companies in the dairy and automobile industries have been investigated and penalized. The anti-trust campaign will extend to more sectors as China’s reform drive goes to deeper levels.

From a long-term point of view, the anti-monopoly campaign holds the key to China’s success in turning its economic system into a law-ruled one. In its attempt to build a market economic system, China has not done enough to impose necessary restraints on power and capital. That may lead China to an unhealthy market economy. To avoid the risk, the ruling party decided at the Third Plenum of its 18th Central Committee that China’s market economy must be ruled by law to get rid of the past illnesses such as unequal rights and ambiguous responsibilities and realize fairness in rights possession, chance access and law enforcement.

From the perspective of international conditions, significant changes have taken place in global trade since the financial crisis broke out in 2008. Instead of favoring “free trade”, the new trend is to emphasize “fair trade”. More noteworthy are the global discussions about such topics as pre-entry national treatment, state-owned enterprises’ neutrality in competition, negative inventory management and fair market competition. Therefore, the on-going anti-monopoly campaign is an important step China has taken to establish a law-ruled market economic system as well as participate in global economic rebuilding. Once fair competition has become common in society, it will greatly benefit not only China but also the rest of the world.

Zhang Monan is a research fellow at the China Center for International Economic Exchanges Associate.

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