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Economic reform and the opening of policies is changing China for the common good. Among those to benefit are transnational corporations who have been making large-scale investments in China. But some of these influential conglomerates and companies are becoming a little uneasy. A recent report warned such foreign business giants were building monopolies here.
After a year of investigation, the State Administration for Industry and Commerce's Fair Trade Bureau published a report entitled "The Competition-restricting Behavior of Multinational Companies in China and Countermeasures." The report gave specifics, such as Microsoft's operating system software and Tetra Pak's packaging materials each holding a 95 per cent share of the Chinese market. Eastman Kodak, which formerly held more than 50 per cent of China's roll film market, is expected to further consolidate its dominance after taking 20 per cent of its sole major Chinese rival, Lucky Film Corp.
According to the report, some transnational companies have been using their dominant roles in technology, brand recognition and capital and management to suppress competitors and maximize profits from the Chinese mainland. For example, on the eve of the release of WPS97 - a set of computer programmes developed by a Chinese company - a multinational hurriedly brought forward its version of the same product at much lower prices. To ensure dominance, some multinationals had carried out sweeping mergers and acquisitions to absorb their major competitors. This report lists a number of industries where free competition may be threatened by multinationals, including software, photosensitive material, mobile phones, cameras, tires and soft packaging.
From above mentioned report, we should not jump to such a conclusion that the Chinese anti-monopoly law is only directed against the multinational corporations. But no doubt, this report has shown grave concern of Chinese Government over the foreign invested giants in the domestic markets. China's admission to the WTO and the further opening up of Chinese markets to the outside world means more and more transnational corporations will enter the Chinese markets. In addition to the high-level technologies, abundant financial resources, world famous trademarks and strong sales networks, the multinational corporations can also rely on various supports from their parent corporations. In market competition, they can quickly acquire dominant positions, even monopolies.
In order to prevent transnational corporations both from monopolizing Chinese markets and from abusing market dominant positions, China urgently needs to adopt an anti-monopoly law. Since the anti-monopoly law targets also the abusing of dominant positions, such a law will serve as an important tool for China to check the influence of the transnational corporations. In my opinion, this report should be regarded as a push for Chinese anti-monopoly legislation.
Because of its concern about negative influences of the multinational corporations upon competition, the Chinese Government promulgated "The Provisional Rules on Mergers with and Acquisitions of Domestic Enterprises by Foreign Investors" last year.
Article 19 stipulates that "if any merger with and acquisition of a domestic enterprise involves any of the following circumstances," the investors shall submit a report thereon to the Ministry of Commerce (MOFCOM) and the State Administration of Industry and Commerce (SAIC): (1) the business turnover in the China market of a party to the merger or acquisition in the current year exceeds 1.5 billion yuan (US$181 million); (2) the aggregate number of mergers and acquisitions of domestic enterprises in the relevant industry in China within one year exceeds ten; (3) the share of the Chinese market of a party to the merger or acquisition has reached 20 per cent; or (4) the merger or acquisition will result in the share of the Chinese market of a party to the merger or acquisition reaching 25 per cent. Even if no circumstances set out in the previous paragraph exist, MOFCOM or SAIC may still require any foreign investors to submit a report, after any competing domestic enterprise, relevant authority or industrial association so requests, and MOFCOM or SAIC believes that the merger or acquisition by foreign investors involves an enormous market share, or there exists any other major factors which may substantially influence market competition, the national economy and people's livelihood or the economic security of the state. "A party to the merger or acquisition" referred above shall include any affiliates of the foreign investor.
According to Article 20, if any merger with or acquisition of domestic enterprises by a foreign investor involves any of the circumstances set out in Article 19 "hereof, and, according to MOFCOM and SAIC, may result in excessive concentration so as to jeopardize fair competition and harm consumers' interests, MOFCOM and SAIC shall, within 90 days from the date on which all the documents submitted are received, jointly or, upon consultation, solely summon the relevant departments, institutions, enterprises and other interested parties to a hearing, before deciding whether or not to grant the approval in accordance with the law."
The implement of Article 20 needs detailed rules, for example for interpreting "excessive concentration" or "fair competition'. Due to the lack of such details, the Provisional Rules on Mergers have not been used in concrete cases to date.
Obviously, the Provisional Rules on Mergers is aimed to control the market power caused by transnational corporations in Chinese markets. But in my opinion, the Rules, directed against only foreign investors, have no vitality, because it could be regarded as a discriminative treatment, and such treatment flies in the face of WTO principles.
Also the economic globalization and the wave of transnational movements in terms of capitals and technologies, the nationalities of a lot of corporations seem unclear - sometimes even difficult to be identified.
Of course, in view of the stronger financial forces and higher techniques of the transnational corporations compared with the national enterprises, it is necessary for the government to control merger and acquisitions by foreign investors so as to prohibit abusive activities by foreign enterprises with dominant positions in the Chinese markets.
For this purpose, the best way is to establish and implement an effective antitrust law in order to provide a free and fair competitive environment to all enterprises, no matter if they are private or public, foreign or domestic.
It has been proved that almost any monopoly, either private or administrative, either by domestic enterprises or by multinational corporations, should not be deemed right.
I am confident that not only the Chinese people, but also both domestic and foreign-invested businesses, will benefit from China's future anti-monopoly legislation.
The creation of the anti-monopoly law was put on the legislative agenda at the 10th NPC in its five-year tenure, which ends in March 2008.
(The author Wang Xiaoye is a researcher at the Institute of Legal Studies of the Chinese Academy of Social Sciences.)
(China Daily August 23, 2004)
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