While the move to probe THE monopoly practices of some major infant formula producers will help strengthen market order in the short term, the quality of domestic products holds the key to the healthy development of the market in the long run.

The National Development and Reform Commission is investigating alleged price fixing and anti-competitive practices by producers of milk powder.

The investigation was launched against the backdrop of repeated rises in the prices of infant formula produced by some major brands in the past four years and ensuing complaints from consumers. Most of the investigated companies are foreign, and together they hold about half of the total market share.

Aimed at restoring normal market order, such an investigation is necessary so long as it is carried out in line with anti-trust laws and regulations. Experiences in all markets show that price control aimed at excluding fair competition is against the interests of consumers and damages the market in the long run.

However, policymakers and regulators should also be aware that the alleged violations of the country's anti-monopoly laws by these brands have been partially encouraged by domestic producers' lack of competitiveness.

The consumer preference for foreign infant formula brands is mainly driven by the public distrust of domestic producers after a series of serious milk safety scandals since 2008, one of which left at least six children dead after toxic chemicals were added to milk powder products. Since then many Chinese families have favored foreign brands, even though they are priced much higher than domestic products, as they believe them to be safer.

When there is evidence that prices are being fixed, intervention by regulators is indispensable. But in the long term, what ultimately drives competition and eliminates such practices is the participation of more major players.

While they are generally weaker than their foreign competitors in terms of financial strength, technological capability and marketing skills, Chinese companies are primarily uncompetitive because most of them have yet to win back public trust.

It will take time and strict enforcement of the recently introduced quality guarantee system to improve the quality of domestic baby formula and raise public confidence in domestic formula producers.

(China Daily USA 07/05/2013 page15)