Fuel for the fire

The latest firm to receive a fine

Founded in 1862, Towngas is Hong Kong’s first public utility. Despite serving a market of just under eight million people, it has been the most profitable gas supplier in China for several decades.

How? Hong Kong may get regularly championed as one of the world’s freest economies in competition terms but a key strength of Towngas – in which Hong Kong property heavyweight Henderson Land is a major shareholder – is its near-monopoly status in an extremely affluent city.

The company enjoys a market share of more than 80%, much more than its counterparts in the mainland such as ENN Energy and CR Gas, which compete with each other in most cities for contracts with households.

Perhaps that helps to explain some of the irony when news broke that Towngas China, the China unit of Hong Kong’s quasi gas monopoly, had found itself as the latest target of Beijing’s new determination to investigate unfair competition.

Antitrust regulator the State Administration for Market Regulation (SAMR) said last week it had fined the Yixing branch of Towngas China (Yixing Ganghua) Rmb35 million ($5.5 million), or 2% of its 2020 revenue, plus a Rmb5 million surcharge for income generated from anti-competitive behaviour. According to SAMR, it received a complaint in Jiangsu province in January 2019 about Yixing Ganghua’s anti-competitive behaviour. Subsequent investigations suggested that the company had taken advantage of its dominant position to charge “unfairly high prices” for its products, including extra winter fees for households, as well as connection charges for commercial clients.

Towngas China is one of the leading suppliers in the China market. It provides gas to nearly 15 million households and companies across 288 Chinese cities. According to its annual report, it holds an 80% stake in the Yixing unit, which was established in 2001. The division sells fuel to a population of 1.2 million.

SAMR has emerged as a scourge of many of the most established names in the internet sector after dishing out a slew of fines over the past year or so to companies such as Alibaba and Meituan on antitrust concerns. Its action against Towngas China was the first antitrust punishment for a private-sector firm in the energy sector, however.

Other energy customers in China have long griped about the absence of competition, especially in the upstream market that’s controlled by CNPC, Sinopec and CNOOC, a trio of state-owned oil and gas giants. It will be interesting to see whether SAMR’s antitrust appetite will extend to other market segments, such as petrol stations serving motorists, for instance.

Interestingly, Citic Group, a financial conglomerate under the supervision of the State Council, has been on the receiving end of SAMR’s attentions too – albeit rather indirectly. The antitrust regulator deepened its enforcement drive across the financial sector last week, saying that it had fined Citic Bank and the internet company Baidu Rmb500,000 each for fluffing compliance rules in failing to report a joint venture formed in 2015.

The JV in question, 70% owned by Citic Bank, was launched as Aibank in 2017 as an internet lender powered by new applications of artificial intelligence. It became one of five digital banks in the country, but the only one with a state-owned enterprise (SOE) as the major shareholder.

SOEs have traditionally enjoyed unassailable privileges in the banking sector – even while their services have not particularly endeared them to the Chinese public. Internet-based financial firms such as Aibank and Alibaba’s Ant Group were supposed to lead the way in shaking up a moribund industry by creating more competition for the state-owned lenders. Of course, Beijing then seemed to backtrack on the strategy, after concerns that companies like Ant Group were becoming too influential. Ant then became SAMR’s most notable scalp, following the cancellation of its IPO last year. It remains to be seen where SAMR will strike next…

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