Holy crap, that sounds like a hot story, doesn’t it? In fact, I’ve seen this already being circulated by the Associated Press (and everyone else that picks up and distributes the AP). My goodness, it sounds as though someone caught the Chinese government doing some very bad things.

Here’s the first paragraph of the AP story:

China acknowledged Thursday that only foreign companies have been forced to scrap or change business deals under its two-year-old anti-monopoly law but rejected complaints the measure is discriminatory.

Wow, Beijing has apparently been caught being protectionist, right? Wait, it gets even worse:

The American Chamber of Commerce in China and other business groups note that regulators have yet to pursue major state-owned companies under the law, even though most are monopolies or have market shares well above the legal limit.

So while they’re targeting foreign companies, they haven’t even gone after State-owned Enterprises (SOEs), which are obviously well above the concentration limits established in the Anti-monopoly Law (AML). Horrible.

OK, if you haven’t already noticed my sarcasm dripping off of your monitor or mobile phone screen, allow me to confirm: this “news” is ridiculous. As the AP article itself explains, there have been about 140 cases brought under the AML. Almost all of those have involved Chinese companies, with only five dealing with foreign company transactions (M&A reviews). Of those five, only the Coca-Cola/Huiyuan deal was rejected because of market concentration concerns.¹

Have only foreign companies been hit by the AML? Technically yes, but that statement is extraordinarily misleading.

What about the fact that the government has not gone after SOEs with high market concentrations that are above the limits set by the AML? Well, I’m not an expert on the AML, but I can read, and Article 7 of the law specifically says that SOEs will be treated differently than private enterprises.

In other words, you can’t just take the concentration limits found elsewhere in the AML and expect that the regulators will use that standard when it comes to SOEs — the law just doesn’t say that. It’s true that Article 7 does say that regulators will investigate SOEs whose concentrations lead to things like unfair pricing that harm consumers. To the extent that the government has been lax in enforcing pricing irregularities against SOEs, that’s a fair criticism (although not one cited specifically in the AP story).

I understand that someone from the Ministry of Commerce was talking about the subject and that the AP felt the need to report on it, but I have several problems:

1. An editor somewhere should have killed the story. There is nothing newsworthy here.

2. The article’s headline is very misleading and suggests something which is later disproved in the article itself. They could have at least put a question mark at the end of the headline or something.

3. Foreign criticism is attributed to “business groups” and “companies,” which makes me think the writer just called up AmCham and no one else, perhaps writing against a tough deadline. Not only is this really weak in and of itself, but these anonymous sources were cited in the article after it was noted that only the Coke deal had been scrapped (i.e. no widespread discrimination had really been going on). Sort of makes the critics look like idiots, and I don’t think that was the intent.

4. There is a great deal of bona fide concern out there from folks who think that the AML will be used to discriminate against foreign acquisitions of Chinese enterprises, or through challenges to IP rights/deals under Article 55. This could have genuinely supported the thesis of the article but was left out.

5. For heaven’s sake, get on the phone and get a direct quote from a M&A/competition lawyer!

UPDATE: Silicon Hutong just posted a less sarcastic criticism of the AP story.
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1. By the way, commentary by competition law experts on that case was mixed, with some saying that the outcome was justified. Given that the case was heard only months after the new law was passed, it always seemed to me quite a stretch to use it as an indicator of how future cases might be adjudicated.[↩]

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