Firms fret over monopoly probes

Updated: 2014-09-04 05:17

By CHEN WEIHUA in Washington and LAN LAN in Beijing(China Daily USA)

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China's anti-monopoly investigation has drawn increasing concern from foreign companies despite the Chinese government pledge that firms, domestic and foreign, are treated fairly.

A US-China Business Council (USCBC) 2014 member company survey released on Wednesday showed that 86 percent of companies said they are at least somewhat concerned about China's evolving competition regime, although more so about the potential impact than the actual experience so far.

In 2008, China's Antimonopoly Law (AML) became effective after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union and other jurisdictions. The USCBC describes the law as more closely tied to the EU model and contains some elements unique to China.

In its report, the USCBC said the publicly-announced cases it monitored showed that both foreign and domestic companies have been targets of AML-related probes, but that foreign firms appear to have faced increasing scrutiny in recent months.

The perception that foreign companies are being disproportionately targeted is also fueled by China's domestic media reporting which has played up foreign-related investigations versus those of domestic companies, according to the report.

The companies' concerns focus on fair treatment, nondiscrimination, lack of due process and regulatory transparency, lengthy time periods for merger reviews, role of non-competitive factors in competition enforcement, determination of remedies and fines and a broad definition of monopoly agreements.

"USCBC membership is asking: Will China use the AML to protect its domestic industry rather than promote fair competition? Is the Chinese government using the AML to force lower prices, rather than letting the ‘market play the decisive role' as enshrined in China's new economic reform program? The answers are not fully determined yet, but in at least some cases so far, the USCBC sees troubling reasons for concern," said USCBC president John Frisbie in a press release, without naming the specific cases.

The report predicts that China, with its large economy, will develop into the third leg of the global antitrust regime, along with the US and EU.

In Beijing, Chinese officials have urged companies operating in China, domestic and foreign, to review their operations to see if their practices fully abide by the AML.

Xu Kunlin, director of the bureau of price supervision and anti-monopoly of the National Development and Reform Commission (NDRC), said some business operators in China have failed to adjust their practices in accordance with the AML. "Others have a clear understanding of the law, but they take the chance that they may escape punishment," he said.

He said any company that violates the law will be thoroughly investigated, regardless of its ownership structure or whether it is foreign-owned.

Xu said the NDRC will promote transparency of law enforcement and welcome supervision from the public and the companies under investigation.

US semiconductor maker Qualcomm and German automaker Audi were two of the foreign companies put under the anti-monopoly probe in China. And domestic companies included liquor maker Moutai and Wuliangye. Microsoft was also told on Monday it has 20 days to reply to queries on the compatibility of its Windows operating system and Office software suite as part of an anti-monopoly investigation.

Oded Shenkar, a professor at the Fisher College of Business of Ohio State University and an expert on Chinese business, said the report basically repeats what people have heard for more than a year that the business environment in China is becoming less favorable to foreign companies.

He said it is true that prices of certain products are significantly higher in China than elsewhere, but there are many reasons for that and many of them are not monopoly-related.

"(It has) to do with taxes, with an efficient supply chain, with dealer regional exclusivity, and with the preference of Chinese consumers for high status luxury goods," he said.

"Yes, Audi sells its cars and spare parts for more money than it does in most other domestic markets, but can one argue that it has a monopoly in China when consumers are welcome to buy a Mercedes or a BMW? I doubt it," Shenkar said.

He believes the current perception by foreign firms is not good for China, which still relies on foreign investment for much of its exports and has a long way to go in climbing the technology ladder.

"The foreign firms need China, but China also needs the foreign firms," he said.

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