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March 16, 2012 1:54 pm

Antitrust a buzz word at China’s parliamentary meeting

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uring the past week, China’s annual parliamentary meeting has been bubbling with calls for strengthening enforcement of the anti- monopoly law, with advocates focusing on the domestic dominance of state-owned enterprises (SOEs).

The increasing emergence of antitrust as mainstream vocabulary in China partially reflects the growing popular pressure for Beijing to reform SOEs and transfer more wealth to the private sector, as well as better awareness of the country’s nascent anti-monopoly law, China legal sources told dealReporter.

It is too early to say whether any serious SOE reform can take shape, but there likely will be an increase in antitrust investigations and lawsuits targeting not only foreign companies but large, Chinese conglomerates, they said.

“Reforming the SOEs has been discussed for many years,” said Elizabeth Wang, a principal at Charles River Associates. “Now people may have found that the anti-monopoly law is a tool that can really tackle this issue.”

The National People’s Congress (NPC), and the accompanying Chinese People’s Political Consultative Conference (CPPCC), are known more for rubber-stamping the Chinese Communist Party-led government’s policies than crafting original legislation. But increasingly, the once-a-year spectacle in Beijing featuring the country’s movers and shakers has become a stage for influential politicians, business executives, scholars and interest groups to sound out new, or even bold, ideas.

The NPC opened on 5 March and closed on 14 March. The CPPCC started 3 March and ended on 13 March.

A high-profile Shanghai attorney, for one, submitted a proposal to the CPPCC last week saying China should further empower its court system to handle antitrust cases by establishing a specialized anti-monopoly court and charging the Supreme People’s Procuratorate with power to launch its own antitrust investigations.

“China’s application of the anti-monopoly law has mostly been done by the executive branch,” Duan Qihua, a managing partner at Duan & Duan and a member of the CPPCC, told this news service. “Antitrust enforcement by agencies like Ministry of Commerce (MOFCOM) or National Development and Reform Commission (NDRC) can be efficient. But it’s not enough to rely only on administrative measures.”

Given the Chinese government’s close connection to the SOEs, it’s questionable how far government agencies are willing to pursue these companies that dominate many of China’s key industries, such as telecom, utilities and transportation, Duan said.

“While enforcing the antimonopoly law, the government can become a tool to avoid competition and maintain monopolistic interest groups,” Duan said in his proposal.

He said China should adopt a system similar to the US, where the Department of Justice (DoJ) can independently launch its own antitrust investigations.

Unlike the NPC, the CPPCC has no power to make law. But its membership, which includes representatives from provinces and cities, interest groups and industry leaders approved by the government, can submit legislative recommendations. Duan said the government may review his proposal in a few months.

Duan also dismissed as insufficient Beijing’s vow to increase anti-monopoly enforcement.

Premier Wen Jiabao, in his annual government work report to the NPC on 5 March, said some of the country’s top reform priorities include fighting monopolies and encouraging private investments in sectors like railway, telecom, healthcare, finance and municipal infrastructure. But he also said China “will not back away from its state-owned economy.”

There are signs that China’s court system is becoming more involved in antitrust litigation.

Beijing Ruibang Yonghe Science and Technology Trade Company (Rainbow) has filed a suit against Johnson & Johnson Medical (China) and its Shanghai branch in the Shanghai No.1 Intermediate Court, alleging that J&J China set a minimum price for suturing products distributed by Rainbow to hospitals in China. A Chinese attorney familiar with the case said this is the first civil case in China involving vertical monopoly. Rainbow is seeking damages of CNY 14.4m. The court is yet to rule on the case.

Another China-based antitrust attorney familiar with the case said the Shanghai No.1 Intermediate Court considers the deal important because it could become a precedent of the court system’s involvement in the enforcement of the AML.

China has authorized the MOFCOM, NDRC and State Administration for Industry & Commerce (SAIC) as enforcement bodies of the AML, but these regulators are administrative bodies, not legal enforcement bodies, the attorney said. They have limited function in protecting victims and ordering a company to compensate victims, he added.

“It is difficult for these three AML enforcement bodies to fight against other same-level regulatory bodies such as State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and Ministry of Industry and Information Technology (MIIT) if there are any monopoly behaviors among SOEs,” said a Beijing-based AML expert.

“Usually Chinese regulatory bodies would save face for each other rather than fighting against each other directly,” he said. “So when the AML faces large SOEs and regulatory bodies, its power will be weakened.”

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