Sunday, September 16, 2007

China passes anti-monopoly law

Sources:
Financial Times - Viewpoint: Competition law should help create a level playing field
Financial Times - Investors fear over China monopolies law

Signifying China's transformation into a market economy, China's National People's Congress passed the country's first anti-monopoly law on August 30, 2007. The new law is intended to open China’s growing economic markets to more free and fair competition. Under the new law, foreign acquirers of Chinese companies are required to go through a national security check which leaves the possibility that China will remain a protectionist economy. The law does prohibit “cartel behavior, including collusive agreements to fix prices or restrict output, rig bids, divide markets or launch boycotts” and also prohibits “enterprises from abusing dominant market positions through refusing to deal with competitors, forcing exclusive deals, or tie-in sales.” This is potentially a huge move away from China’s many business monopolies. Also, an attorney for a large Beijing law firm stated the anti-monopoly law "creates the legal basis for eventually doing away with government monopolies" which include energy, telecommunications, the media, etc.

However, foreign investors and Chinese companies are apprehensive about this new law for several reasons. In general, Chinese legislation is vague and is expected to provide a framework that government departments later clarify and develop by administrative regulations. Accordingly, there is concern over how the law will be implemented. As a result, some believe China does not have the expertise in terms of trained personnel to implement this statute. Furthermore, some foreign investors worry the government may use the new law as a basis for protectionism. One attorney commented the “anti-monopoly law will lend support to the policy agenda of protecting China’s economic and national security and could be used to block unpopular foreign investments.”

Discussion Questions:
How do anti-monopoly laws affect economic and foreign relations between countries?

Are anti-monopoly laws beneficial to (international) consumers?

More than 80 nations have implemented competition regimes. Should more countries pass such laws?

1 comment:

JLH said...

While I commend China for taking action against monopolies and supporting a competitive market, your article encouraged me to also explore the negative impact that China’s new antitrust laws will have on international trade and investing. You stated that “some foreign investors worry the government may use the new law as a basis for protectionism,” and I find myself fearing this same result. China’s history of isolationism does not help to abate these fears either—their disregard for foreign interaction started with the closure of its borders in the 1500s under the Qing Dynasty and continued into the 20th century during Mao Zedong’s communist regime. Perhaps the examples of isolationism I just described are not exactly protectionist policies, but their underlying premise is the same: China does not seem to favor or welcome foreign involvement. Furthermore, these new antitrust laws which are comprised of “vague” legislation may allow the Chinese government to arbitrarily prohibit “unpopular foreign investment” and this could be detrimental to many international businesses. On a different note, you also report that the new policies “will eventually do away with government monopolies”. However in Article 7, the law provides that certain state-owned industries will be “protected by the state”. If this law stands, how do you foresee the abolishment of these government monopolies and what timeline do you predict for this event?