Chillin'Competition

[We are delighted to announce the launch of Chinese Antitrust Exceptionalism, the book Angela Zhang has recently published with Oxford University Press. As you all know, Angela is an Associate Professor of Law at the University of Hong Kong (she was previously based at King’s College London). Over the years, Angela has emerged as a leading Law & Economics scholar with an incredibly broad range of interests. We are pleased to see that competition law is still among the core areas of her research. She has been kind enough to share with us a taster of her monograph. Enjoy!].

Chinese Antitrust Exceptionalism explores the unique ways in which China regulates and is regulated by foreign countries, revealing a ‘Chinese exceptionalism’ that is reshaping the global antitrust regime.  

To help us understand this new force, I dive deep into unique Chinese political and economic institutions, examining bureaucratic politics, the power imbalances between businesses and the government, the highly decentralized economic system, and state-led governance. This allows me to explain the dilemmas foreign multinationals have faced in complying with Chinese antitrust law, as well as the difficulties Chinese firms have encountered overseas as U.S. and E.U. antitrust regulators tighten their scrutiny over Chinese businesses. 

My book consists of three parts—how China regulates, how China is regulated, and regulatory interdependence.  In Part I, I explore the first major dimension of Chinese antitrust exceptionalism by delving into Chinese political and legal institutions that have posed significant challenges for foreign firms operating in China.  I explain the rise of Chinese antitrust regulation by analysing the incentives of the antitrust enforcers, as well as the path dependent nature of the bureaucratic performance.  Then I try to unravel the myth behind the paucity of appeals against antitrust agencies in China. I specifically focus on the immense administrative discretion possessed by antitrust authorities and the media strategies that they can use to advance difficult cases.

Contrary to the popular western perception that the Chinese government is a monolith, I show that a key defining feature of the Chinese bureaucracy is that power is highly fragmented. For instance, Chinese merger control is a consensus-building process involving the antitrust authority, sector regulators, industrial policy planners, and occasionally local governments. And when it comes down to the regulation of large state-owned enterprises, the interaction between the different bureaucratic players has resulted in serious disagreements.

In Part II,  I explore the other dimension of Chinese antitrust exceptionalism by focusing on the antitrust challenges that Chinese firms experience overseas. I detail the unique way that Chinese firms have been treated by Western regulators and how such regulatory outcomes are also deeply rooted in China’s distinct political economy, particularly its decentralized economic structure and state-led model of governance.

Indeed, the European Commission has had a hard time assessing the independence of Chinese SOEs when dealing with acquisitions from China. The EU is used to applying a bright-line test in deciding whether an SOE is an independent entity, but this test does not work well when it is applied to Chinese SOEs.  Although the Chinese state has voting power to influence SOEs, it may lack both the incentive and the ability to coordinate competition between them. As a consequence, the formal corporate control of the Chinese state over SOEs is a poor indicator of the anticompetitive effects such control might produce.

Paradoxically, while this bright-line test can lead to an over-inclusion problem, it can simultaneously lead to an under-inclusion problem. The EU merger review only acts on acquisitions of controlling interests. This means that Chinese SOEs can bypass EU antitrust scrutiny by making minority acquisitions in Europe. Because there is a blurred line between SOEs and privately-owned enterprises in China, a Chinese SOE could escape antitrust scrutiny entirely by employing a non-controlling subsidiary as a vehicle to acquire European assets.

As the EU’s existing antitrust regulatory framework is not fully equipped to handle Chinese investments, I urge the Commission not to deploy competition policy too broadly when reviewing Chinese SOE acquisitions. I suggest that the Commission instead seek alternative regulatory tools such as investment review to tighten their scrutiny over Chinese takeovers. This appears to be exactly the direction the EU is heading towards, especially with the  recent promulgation of the White Paper targeting state-backed acquisitions.

In the last part of my book, I return to the analysis of China’s antitrust law, albeit in a different context, showing that there exists a close interdependence between the regulatory moves of the United States and those of China. In addition to launching a trade war against China, the United States is aggressively claiming extraterritorial jurisdiction over Chinese technology companies and executives, and China is now emulating this practice by wielding its antitrust law to demonstrate its own extraterritorial regulatory capacity. 

In my book, I have tried my best to present a neutral, balanced, and honest view of regulatory conflicts between the East and the West. I sincerely hope Chinese Antitrust Exceptionalism can facilitate dialogue between the two sides in dealing with some of the thorniest regulatory issues that have beset their relationship.

This book has proven to be incredibly timely.  In the past few months, China has taken unprecedented action to enforce antitrust regulations against its leading firms, such as the fintech conglomerate Ant Group and its affiliate Alibaba.  Based on insights from this book, my responses to these events have been quoted by numerous media outlets and my commentaries have appeared   in   Project   Syndicate, Nikkei Asia, Fortune and Bloomberg.  Recently, I was featured on CNBC, as well as the Economist’s virtual event on balancing innovation and regulation. For more details, please visit the book’s website: Chinese Antitrust Exceptionalism | Angela Zhang 

I very much look forward to hearing your feedback! (twitter @AngelaZhangHK)