Anti-Monopoly Law: New Guidance for China’s State Sector
One of the big questions hanging out there since the adoption of the Anti-monopoly Law (AML) a couple years ago has been the treatment of State-owned Enterprises (SOEs) and the regulation of the State sector. One of the pillars of competition law is to promote fair competition, and monopolies and monopolistic conduct often runs counter to that principle.
China’s State sector, and its industrial policy in general, presents a competition law problem. How do you square the existence of dominant SOEs, many of which have very large market shares, with fair competition?
The AML provides some basic guidance on this issue. Article 7 acknowledges that although SOEs may engage in monopolistic conduct, they will be protected by the State. In other words, they will receive special protection. At the same time, however, the State recognizes the danger posed by these special privileges and has a duty to regulate SOEs and their pricing behavior.
Articles 8, and 32-37 address specific actions of government actors in restricting competition, laying out certain situations and actions that are prohibited.
Not a lot of detail there, and I have not heard too much on this issue recently. Until Friday, when Grandpa Wen brought up the subject at the meeting of the National People’s Congress.
China will accelerate the reform of monopoly industries to facilitate fair competition among private and state-owned businesses, Premier Wen Jiabao said in a government work report delivered at the parliament’s annual session Friday.
There are calls for government to loosen the grip and invite private sector to join the competition in monopoly industries.
We’ll have to wait and see what all this means once individual policy documents are released. One specific area mentioned was the use of competition to affect pricing of natural resources in the area of energy in the furtherance of environmental goals.
The government said it will deepen the reform of prices for resource products and environmental protection charges as the current state-controlled pricing mechanism does no good for conserving energy and resources, and achieving sustainable development.
Wen noted pushing forward these reforms requires the government to balance the interests of different parties and ensure that the basic living conditions of people with low incomes are not adversely affected.
My initial reaction is, “Great! But why would a private investor dare to enter into an industry dominated by the state?”
Then I look at the auto industry, and that’s exactly what’s going on. Why do BYD, Geely and Great Wall (ostensibly private enterprises) dare to compete with the likes of Shanghai Auto, First Auto, Dongfeng and Chang’an?
Something different is going on in China, and it poses a serious challenge neo-liberal economic theory.
I don’t like it to admit it sometimes, but in some industries, the best a foreign investor can hope for is short or medium-term success, perhaps in a JV with one of the “chosen” SOEs. A lot of them will eventually get pushed out.
It’s a big country with a lot of sectors, though. Not every one is like cars or online games.
It’s not like we’ve never seen aggressive industrial policy before, though, right?
If legislation and fierce enforcement didn’t stop corruption, why would you think a guideline to the all powerful SOE’s will make any difference, except in accelerating the promotion of some officials through prosecution/promotion routine.
Sort of depends on what the ultimate goal is of new AML rules. Don’t assume that a new policy will necessarily move in the direction of liberalization in industries dominated by SOEs. However, the government has much more control over the actions of large SOEs than it does with controlling the corrupt actions of local officials. In that sense, if the Central Government really wants to effect change in this area, it probably could do so to some degree. That being said, I don’t know what the specifics are and what they may try to do.