Regulatory actions will help create a stable, long-term economic climate

Foreign companies in China are getting increasingly jittery over the spate of antitrust investigations being launched by Chinese regulators. Such apprehensions are natural, considering that the probes have extended to high-growth sectors like electronic accessories, wine, imported cars, milk powder and pharmaceuticals.

What must be particularly worrying for the foreign companies is the apprehension that they are pawns in a bigger geopolitical and economic game involving China and Western governments, especially at a time when the Chinese economy is slowing and investigations against Chinese companies in Europe and the US are growing.

However, the reality is something else. The Ministry of Commerce has so far probed 170 merger cases under China's antitrust laws. Though multinational companies are involved in several complaints, the anti-monopoly bureau has rejected very few cases. One such example is Coca-Cola's failed bid to take over China Huiyuan Juice in 2009.

The National Development and Reform Commission had earlier this year punished Samsung and five other LCD manufacturers in China for price monopoly, the first such instance. The fine levied on these companies was far lower than what they would have paid for similar offenses in the US or Europe and seemed more of a warning than a punitive action. Such actions clearly indicate that China is not being vindictive or discriminating against foreign companies.

There is also a broader reason why foreign companies are facing such investigations. It could be due to the fact that some multinational companies have a larger market share in certain sectors due to the exclusive agreements they signed with local governments, for investment and technology transfer, during the early years of reform and opening up in China.

At that time, learning advanced industrial technology and production management techniques through foreign investment was one of the steps mooted by policymakers for industrial development. That strategy, has to some extent, ensured the high-speed growth of the Chinese economy for a long time.

However, the global financial crisis and its prolonged effect on the world economy led to lower economic growth in China. Several unfavorable factors have emerged, such as foreign trade slowdown, declining fixed asset investment growth and continuous negative growth in the producer price index. At the same time, economic structural imbalances and excess production capacity have increased, making it difficult for emerging industries and private enterprises to acquire top technology. It also led to several bottlenecks in financing.

To adjust to the changing realities in domestic and international markets, policymakers have come out with several steps to attract foreign investment in industries that promote innovation, have low energy consumption and are high-tech in nature.

Though these steps have helped foreign companies to expand their IPR mandate in China, it also envisages more gains for Chinese enterprises. At the same time, some monopolistic foreign companies would also have to team up with Chinese enterprises to jointly explore the Chinese market.

The Ministry of Commerce and the National Development and Reform Commission had last year indicated that they would beef up their anti-monopoly work during the next few years.

This, in part, correlates with the government's macroeconomic policy. The government has shown a certain degree of concern over foreign acquisitions of state-owned assets. The government is concerned that if domestic private enterprises or foreign companies acquire too many state-owned enterprises, especially agricultural and heavy industry enterprises, it might affect the future direction of China's economic development.

Despite the concerns, it is clear that the anti-monopoly measures are not targeting only foreign companies. The Ministry of Railways, which used to be a typical representative of a monopolistic institution, has been undergoing restructuring and marketization recently. In this case, it is not just a simple industry restructuring, but also a precursor of opening up more monopolistic sectors to the market and of measures to boost employment.

The new leadership is clear in its vision that economic development should be realized through reforms, and measures to improve national income and boost consumption would help complete a sound economic cycle.

To achieve this, they have to dismantle policy barriers, gradually open up controlled industries, and stimulate the use of private capital. Large capital needs to be gradually infused to break the long-term monopoly in energy, finance and telecommunications.

The Ministry of Industry and Information Technology earlier this year released a pilot program on the mobile communications resale business. Under the plan, private enterprises that meet the mandatory requirements will be allowed in two years to operate mobile communications resale businesses to encourage, further support and guide private capital to enter the telecommunications industry.

Compared with the past, China's monopoly laws fully authorize Chinese individuals to sue companies for unfair competition. Most of the antitrust cases involving Chinese nationals as plaintiffs have been against domestic firms such as China Netcom and China Unicom.

It should be noted that in the future it is possible that Chinese individuals may start civil proceedings against foreign firms. But it must also be noted that civil actions under the antitrust laws do not form the legal basis for restricting foreign companies in China.

The author is a professor at Beijing Information Science and Technology University.

(China Daily European Weekly 09/13/2013 page9)