Pacific Money

Distrust About China’s Antitrust Campaign

Are concerns about China’s anti-monopoly investigations into foreign multinationals valid?

Distrust About China’s Antitrust Campaign
Credit: TonyV3112 /" target="_blank">Microsoft in Beijing via TonyV3112 /

The past three months or so have witnessed a deluge of news stories about China’s anti-monopoly investigations, though the surge in such investigations really began in 2013. Since that time there have been numerous investigations against foreign auto parts firms, milk powder producers like Wyeth, pharmaceutical companies like GSK, food packaging companies, and IT giants like Microsoft. Investigations have led to the imposition of hundreds of millions of dollars of fines against Korean and Taiwanese LCD screen producers, Japanese ball bearing companies, and American and German car firms and dealers such as Chrysler and Volkswagen for charging excessive prices, abusing market position, and vertical monopolies.

These cases have, in turn, fueled anxiety that China is exploiting its antimonopoly law and associated regulations to punish “foreign” firms or firms from particular foreign countries in potential violation of its World Trade Organization and other commitments. Foreign companies, business associations, and home governments have expressed considerable concern about the way Chinese regulators from bodies such as the National Development and Reform Commission (NDRC) have been gathering evidence, the lack of procedural transparency, and what they perceive as strong-arm tactics against corporate executives, legal representatives, and even translators.

Observers advance numerous rationales for recent developments. One of the most common assertions is that China is trying to protect domestic firms. A second argument is that China is trying to control prices in politically sensitive sectors like milk power and medicines where consumers are price sensitive and, in the latter case, where the government has to foot part of the bill for products. A third explanation focuses on pressure from domestic firms that feel premium foreign prices for the goods they use are reducing their already razor-thin profits. This explanation seems to find succor in antitrust cases such as Qualcomm’s, where Chinese companies have voiced strong complaints about the high licensing fees they give Qualcomm. A fourth potential driver is China’s increasing awareness of antitrust activities in other countries and regions such as the U.S. and the European Union against some of the very firms that China is targeting. Linked to this is Chinese ministries increasing comfort running antitrust probes. A fifth possibility is that anti-monopoly regulators at the central and local government level are trying to impress top Chinese party and government officials, who have stressed nationalism and patriotism, the need for China to move up the value-added chain, and cybersecurity. In addition, they may be acting to garner status and power vis-à-vis other ministries, as well as money from fines.

Regardless of the motives for its intensified anti-monopoly activities, Chinese policymakers and top bureaucrats have gone to considerable lengths, as least verbally, to assure foreign firms, industry association, and governments that they are not discriminating against firms merely because they are foreign or are associated with particular governments. To illustrate, in remarks to the World Economic Forum on September 10, Chinese Premier Li Keqiang pointed out that only 10 percent of anti-monopoly cases involve foreign firms and also that China’s investigations were fair, transparent, and done according to the law. The next day, representatives from the NDRC, Ministry of Commerce, and State Administration for Industry and Commerce gave a joint press conference that denied any discrimination, rejected claims that foreign companies were being treated in an abusive manner, and expanded on Li’s announcement that cases involving foreign companies were very few. Chinese elites such as Chinese Vice Premier Wang Yang have opined that the recent wave of anti-monopoly activities is part of the government’s effort to promote competition and increase the role of the market. Finally, it has been noted in Chinese media that the Chinese government has imposed antitrust fines on domestic jewelers, milk powder makers, liquor producers, and cement producers.

Certainly the vast amount of media coverage given to antitrust cases involving foreign firms is one factor behind the view that China is discriminating against foreign firms. In addition, negative assessments proliferate because analysts do not have information demonstrating that China is meaningfully evaluating whether or not monopoly conditions really exist within a particular industry or whether or not foreign firms really are earning supranormal profits, versus just assuming companies are abusing their market position or earning supranormal profits. Moreover, the flood of cases against foreign auto parts firms and car firms following the release of yet another round of news reports highlighting the great success and profits of foreign automobile firms in China and the troubled situation of Chinese domestic automobile firms only makes more suspect Chinese government claims that it is not trying to protect domestic players.

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It appears that high-level policy pronouncements and the publication of news stories repeatedly highlighting the same three or four antitrust cases against Chinese companies have been insufficient to mitigate investor worries about the intentions behind the latest wave of investigations. To alleviate investor anxieties, the Chinese government needs to disseminate more information about those bringing antitrust accusations, those being investigated, those being fined, the amounts of fines imposed, and fine amounts relative to harm caused. Moreover, Chinese officials should strive to make antitrust rulings on the basis of determinations of real as opposed to presumed market abuse, an issue that first emerged with the Ministry of Commerce’s rejection of Coca-Cola’s purchase of Huiyuan in 2008. Many antitrust authorities and specialists, foreign and Chinese alike, reject the idea that high prices themselves indicate market abuse, recognizing they may reflect technological leadership by a firm, first mover advantages, or market structures that limit competition. Finally, Chinese regulatory authorities must do more to show that their antitrust decisions reflect real efforts to protect and enhance competition rather than meet other policy goals. The aforementioned steps can help mitigate concerns that China is using its antitrust law and regulations to abuse the market.

Jean-Marc F. Blanchard, Ph.D., is Executive Director, Mr. & Mrs. S.H. Wong Center for the Study of Multinational Corporations; Assistant Dean, School of International and Public Affairs, Shanghai Jiaotong University; and Associate Director, SFSU Center for China-US Policy Studies.