Chillin'Competition

(As you will recall from last week, with occassion of the Chinese New Year we are publishing a year-in-review trilogy by our friend and “China correspondent” Adrian Emch. This is part two of Adrian´s review of 2011.  Enjoy!)

The investigation by the National Development and Reform Commission (NDRC) into the practices of China Telecom and China Unicom had a significant impact inChina. It was one of these cases that people outside the antitrust community actually notice.

The reasons for the high-profile nature of the case may be manifold. For one, most consumers in China will have been a customer of one of the two, in one way or another. Two, the fact that an NDRC official talked to the press while the investigation was ongoing and said that the fine could amount to 1 to 10% of the companies’ annual turnover might have contributed to drawing attention to the case.  But, three, perhaps most significantly, the media’s focus on this case may stem from the fact that China Telecom and China Unicom are state-owned enterprises (SOEs), and very powerful ones at that.  Therefore, it is possible that the main reason for their interest in the case is the surprise, or even disbelief, that someone like NDRC’s antitrust officials would dare take on the two SOEs.

Hence, perhaps the most fundamental underlying question in the China Telecom and China Unicom case is whether and to what extent the Anti-Monopoly Law (AML) applies to SOEs – in law and in practice.  For the international audience, the answer to this question is important: if the AML were in practice not to apply to SOEs, then the targets of the agencies would be private Chinese companies and foreign companies.  For the former, many of them are young companies, which generally do not enjoy much support by the State.  So their market position inChina’s “transitional” economy may not be too prominent, as a general rule.  Which would leave …foreign companies as enforcement targets.

The fear that the AML would be used as a weapon against foreign companies was there from the very beginning of its enforcement.  So let’s take a good look to check whether or not this fear was justified.

Read the rest of this entry »