Trust issues

Next month will mark five years since China introduced its first set of antitrust laws.

As the anniversary approaches it seems that the bodies charged with enforcing the antitrust legislation are doing so with more frequency and greater confidence. In the last month they have launched three major investigations into price and market-related abuses. The most recent case – against Swedish packaging giant Tetra Pak – was launched by the State Administration for Industry and Commerce (SAIC), until now the least active of the three antitrust regulators. The other two major investigations – into seven baby formula companies and 60 drug manufacturers – were initiated by the National Development and Reform Commission (NDRC), the most prominent agency to use the antitrust laws against domestic and multinational firms.

“As the NDRC has become more proactive and gained more experience in this area, we would expect it to expand the scope of its attention beyond resale price maintenance and into other areas of antitrust related to price, such as price discrimination, price gouging, bid rigging or price signalling,” Peter Corne, an antitrust lawyer in the Shanghai office of Dorsey and Whitney, told WiC last week.

“We would also expect SAIC – whose investigatory activity [limited in scope to areas outside of purely pricing] has been relatively low key – to step up its activity in this area,” Corne added.

Although SAIC has carried out smaller local level investigations before, this is the first time it has gone after a multinational company. The head of SAIC Zhang Mao gave no further details on the inquiry, but said it covered 20 provinces and cities. “The administration has filed a case against Tetra Pak on suspicion of abusing its market controlling position,” Zhang Mao was quoted as saying by various Chinese newspapers.

Of the three regulators – the third is the Ministry of Commerce (or MOFCOM) – SAIC’s role is the least well defined, although the Financial Times cited a lawyer from Hong Kong as saying that the Tetra Pak case would help with an understanding of “what to expect from SAIC as a regulator in this field”.

When the new laws came into effect in 2008, MOFCOM was given responsibility for merger control, the NDRC was put in charge of price control and SAIC was given authority for non-price and non-merger related issues.  In addition China has an anti-monopoly commission that reports to the State Council, establishing general policy guidelines and coordinating the three regulators.

While MOFCOM has been wielding its powers for a few years, experts say it is only in the last two years that the NDRC has stepped up its probes. Over the course of the last year it brought successful cases against China’s biggest liquor makers Moutai and Wuliangye, as well as taking action against six foreign firms including Samsung and LG (for price rigging on LCD screens).

In June it also began an investigation into foreign milk formula companies (see article). It then expanded the scope of its enquiries to include dairies, such as Heng Tian Ran, which worked with the foreign brands, as well as higher-end Chinese formula producers such as Beingmate.

This month it emerged that the NDRC has also begun an investigation into drug companies – 33 domestic, 27 foreign – on allegations of excessively high prices. The investigation into drug manufacturers may be linked to the central government’s attempt to improve the provision of free healthcare, which includes a commitment to create a list of 500 medicines whose cost will be covered by the public purse.

The agency will be hoping to get results from the pharma firms similar to those seen in some of its other initiatives. For instance, five of the infant formula brands have promised to cut their prices since the announcement of the NDRC investigation, with both Nestlé and Danone announcing plans to cut prices of their own products.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.