What are the main constraints for the effective enforcement of the antimonopoly law in china - Essay Example

? WHAT ARE THE MAIN CONSTRAINTS FOR THE EFFECTIVE ENFORCEMENT OF THE ANTIMONOPOLY LAW IN CHINA? by of the of the Professor Name of the School City, State January 18, 2013 Introduction Antimonopoly law in China was introduced following the restriction of competition mostly in sales and commercial activities, affecting the fair distribution of resources among the people of China, and its territories. Some businesses, whether private or state owned could monopolize the market activities, from which most small organizations and individual businesses felt strained, and could eventually close the businesses. Having the price of products and services dictated by a specific organization made them monopolize the markets and their shares, such that small and medium enterprises felt inferior, most of them operating under influence of bigger companies and with little as benefits. The Antimonopoly law began operating in early August 2008, making China a vital competition law jurisdiction, for international and domestic businesses, or companies with running activities in China’s territory. Its three broad rules are based on prohibiting abuse of dominant market positions and restrictive agreements, mergers rules preventing mergers or joint ventures that restrict competition as well as control M&A activities, and rules forbidding abuse of administrative powers that end up in competition restriction (Rose, 2012). The application of the law is viewed differently among the people of China. Some think it applies to all businesses or organizations in dealings of providing goods and services, while others think the complexity of the law has something to enhance leniency in state owned enterprises. However, even after its initiation, several factors have dominated to restrict full enforcement of the law. They include limited transparency, concentration, influence from government involvement, outdated economic planning, unreliable market infrastructure, unnecessary enforcement of law, insider control, and general resistance. So far, the Anti Monopoly Law (AML) is being enforced by three bodies; MOFCOM, NDRC and SAIC, to ensure fair competition, safeguard social public and consumer interest, boost economic efficiency, and restrain monopolistic behavior. The enforcement agencies continue to experience challenges and problems in the law enforcement practice, limiting effective application and acceptance of the AML by the people. 1. Limited Transparency Over the years, the enforcement agencies have been handling many cases to do with monopolistic agreements, merger control, and price and non price related cases for the companies and businesses operating and showing interest to practice within China. The NDRC and SAIC have faced accusations of hiding investigation results, but MOFCOM has so far been transparent. NDRC and SAIC, which are regulators of anti monopoly law of China have limited transparency to a certain level, raising the need for confidentiality of certain information, with respect to the companies after investigation. For example, the TravelSky, which is a state owned company, was alleged to change its discount policies back in 2009, influencing other airlines in its network to raise airfares that resulted in country wide complaints The NDRC was the enforcement agency responsible for conducting investigations in the case, but the consumers of the airline service and the public never got to hear the results of the investigation (Wang, 2011). The controversial issue remains as to why some investigation results of certain companies are disclosed, while those of others never get to be released to the public. Again, most of the cases brought forward are convictions of private enterprises, in areas of cartels and abuse of dominance. Does it mean that the law breakers are private organizations and businesses? Surely, the state owned enterprises (SOE) are no exception, but too many issues to do with them are being ignored, or leniency is being applied to them as a favor. The structure of ownership (in this case the SOEs) has been used to influence law enforcement negatively, such that the public is slowly loosing trust in the AML and the enforcement agencies. As much as the enforcement agencies have to be recommended for their great effort in securing domestic positions in the competitive market, the nature of applying effort in investigation, but reducing it in publishing the information, as well as limited or lack of detailed provisions on the procedure taken in various issues, generally make their enforcement actions to be surrounded with mysteries. This is because the society and the affected parties lack transparency in their handling of cases, which means they end up never contended with what was made available. Another related case involved MOFCOM in the acquisition of China Netcom by China Unicom, where the transaction went approved, even if MOFCOM agency was never notified of the 2 SOE companies merge in accordance to AML merge control (Wang, 2011). What the China society needs is a more open system to put clarity on fines, mysteries, procedures followed and legal proceedings in AML application, and the case dealings. 2. Influence from Government Involvement Enforcement effort has been associated with heavy handed government influence, which has been accused to limit the fairness in application of the law. The government agencies such as the municipal councils and most of SOEs could have established informal relations, that may be used to bend the law, for them to achieve what they intend. With the government being involved both in the rule making and as a market player, certain activities in law making or amendment could be as a result of vested interest of the administration, than public general benefit from competition law. It then would be difficult for the organizations and society to apply the law effectively, while still having the government arms top in violation. According to Chang et al, back in 2012, administrative monopoly was experienced through the Heyuan municipal government in the East Guangdong province, after the municipal government violated the AML by its action of preventing sales and promotion of GPS vehicle tracking systems within the region; a complaint was filed through the Guangdong AIC by the GPS operators, against the Heyuan municipal that led to the rectification of Heyuan government abuse of conduct (2013). No doubt that the government agencies, SOEs and high ranking government officials influence each other with regard to law formulation, application, and its enforcement. 3. Concentration It has been a rather controversial issue, serving to block certain companies from fully operating in China, in this age of global competition. Based on the procedure being employed to define companies’ concentration in China, MOFCOM has been able to clear several organizations mergers, either conditionally or unconditionally, if not been subject to rejection. China is now the global subject due to its antimonopoly law, which many would argue to be an act of protectionalism against international competition. Some cases dealing with concentration link with limited transparency and influence issues, preventing or restricting their operations in business. At a time that China’s government is encouraging mergers and acquisition, so as to increase investment and enhance economic development, potential companies like coca cola have been blocked from certain activities in fear of high concentration in the beverage industry. Coca cola is not the only company with high concentration in China, other domestic and foreign organizations exhibit this, yet have been cleared, while coca cola proposal to purchase China Huiyuan Juice Group limited as a merger process was rejected by MOFCOM (Healey, 2010). The perception of many is that the foreign participants in business practice could cause unfairness through influence in pricing and transactions, and impossible entry in the industry. Suppose the coca cola proposal was approved, both the two merging parties had bigger influence in consideration to their brand and market share, meaning once the merge was cleared, expected impact would be Coca cola extending its dominance in carbonated soft drink markets, to fruit juice market. Truly, concentration leads to obstruction of survival for small and even medium enterprises, limiting competition and to an extent, innovation and investment in the lesser shareholding companies in such drinks industry. However, more companies have merged and are now holding a large share of the market in their respective industries, compared to coca cola holding 60% concentration in carbonated drinks, Mistubishi Rayon and Lucite merge accounted for 64% concentration in market share, Pfizer and Wyeth merge with a 49.4 % market share double its competitors and Novartis/Alcon merge with 60 % concentration in china respectively in their distinguished industries (Healey, 2010). Although coca cola/ Huiyuan Juice merge was rejected, even after proposing and holding discussions on how they intended to impose conditions to eliminate anti competitiveness, it seems more of a bias since most operating mergers consists of high concentration in the market, even after being determined by MOFCOM and cleared. Their impacts in the long run are no different from the anticipated effect of the coca cola/ Huiyuan merge. It will continue to be one constraint of the effective enforcement of the law, with more controversies to rise in the reasons behind clearance of some mergers and not others. 4. Planning Economy The leadership and most economic activities of China are under transition. Some high ranking officials are still holding on to outdated versions of leadership and power control. The older tycoons tend to be more confident in the administrative ruling, than focusing in the current market competition and its policies (Wang, 2011). From their positions in government and private sectors, they exercise inside control enhancing administrative monopolistic activities that are in line with their industrial policies interest. They contribute to the resistance in effective enforcement of the AML. Together with political and economists’ ideology and limited companies’ law liberation, the attitude of resistance has been passed on to other existing business ownerships, to obstruct the law enforcement. As you would expect, many of these politicians, tycoons, and structural institutions leadership members are key shareholders in most of the affected companies and organizations. Conclusion The law enforcement mechanisms are way ahead in plans of effective implementation of the law. However, all the agencies need proper coordination to eliminate confusion within the society, and enhance transparency in their fair dealings and assessment of companies, to operate in the China market. Proper clarification in merge procedures and notification should be done, with none of the mergers or acquisition by businesses having to skip the evaluation process by the enforcement agencies. Transparency and concentration issues should be addressed, but China’s economic planning should also shift to logical trends, that match up to the current global market structure and standards. Other minor constraints arise from defective market infrastructure and tax enforcement of law. Bibliography Chang, N. H. F., Hai, H., O’Brien, G., and Brown, M., 2013. China Antimonopoly Law. [online] Available at: [Accessed 18 January 2013] Healey, D., 2010. Anti-Monopoly Law and Mergers in China: An Early Report Card on Procedural and Substantive Issues. [online] Available at: http://tsinghuachinalawreview.org/articles/PDF/TCLR_0301_Healey.pdf [Accessed 18 January 2013] Rose, N., 2012. Antimonopoly Law in China. [online] Available at: [Accessed 18 January 2013] Wang, X., 2011. Three Year’s Enforcement of China’s AML and the Rule of Law. [online] Available at: [Accessed 18 January 2013] Read More