China and Antitrust/Competition Policy

Posted by D. Daniel Sokol

Antitrust is a regulatory tool to improve societal well being through a market based organization of the economy.  In a development context, antitrust works to create a more competitive environment to encourage growth and productivity. An antitrust agency is the primary domestic institution within a country’s antitrust system. It protects competition in a number of different ways. Ex ante, an antitrust agency can prevent anti-competitive conduct through merger review. By reviewing a proposed merger of two firms, an antitrust agency can address the potential anti-competitive effects of a merger prior to its consummation. Another ex ante role is that of competition advocacy. In this role, agencies attempt to mitigate the anti-competitive effect of policy by other parts of government—other agencies or the legislative process. Ex post, an antitrust agency brings cases against anti-competitive conduct whether unilateral or coordinated. Some competition advocacy is ex post and attempts to reduce the impact of anti-competitive laws and regulation already in place.

Within the antitrust international community, China and its potential adoption of an antitrust law is a hot topic and has been for a number of years, as China has been slow to adopt an antitrust law. We are beginning to see some academic literature on the future Chinese law and the types of issues and behavior that the law should address. In terms of enforcement priorities, given the nature of China’s economy—heavy government regulation, many state owned enterprises, and collusive practices among competitors, it seems to me that the priorities of the new agency should be focused almost exclusively on anti-cartel enforcement and competition advocacy. Mergers would be next, especially as Chinese companies begin to consolidate. It should be a long time before any new Chinese agency brings an abuse of dominance/monopolization case. To the extent that it does, the focus should be in regulated industries (e.g., transportation, energy, telecom), where distortions have the largest country-wide economic impacts. In an excellent speech at the Chicago Kent Law Review Conference on Latin AmericanLaw and Development this past Friday, Eduardo Perez Mota, President of the Federal Competition Commission of Mexico (CFC), outlined an enforcement agenda on advocacy and dominance cases focused on regulated industries. The CFC is one of the gems of Latin American antitrust enforcement agencies and has been in business since just before NAFTA was signed. It terms of an enforcement agenda, the CFC understands that the primary distortions in Mexico come from state action that either support state owned enterprises or recently privatized companies.

The above discussion is my way of introducing to a new working paper by Bruce Owen, Su Sun, and Wentong Zheng entitled China's Competition Policy Reforms: The Antimonopoly Law and Beyond.

ABSTRACT: More than twelve years have elapsed since China began its efforts to enact a comprehensive antitrust law. Today, drafts of the law are still being debated, with no real signs of enactment. Such a protracted legislative process is highly unusual in China, and can only be explained by the controversy the draft law generates. After a brief review of China's current competition policy and the new draft antitrust law, this paper discusses the fundamental issues in China's economy that give rise to the challenges facing China's antitrust policymakers in enacting the new antitrust law. These issues include the role of state-owned enterprises, perceived excessive competition in China's economy, mergers and acquisitions by foreign companies, the treatment of administrative monopolies, and the enforcement of the antitrust law. While those controversies create significant policy issues for China, they do not constitute valid objections to the enactment of the new antitrust law. Meanwhile, it will be important for China to recognize that the new antitrust law alone will not be sufficient to fully realize its goal of promoting competition in its economy; other reforms will be necessary as well. China will be better off by moving swiftly to enact the new antitrust law, while keeping the momentum to engage in those other reforms.