The future of antitrust

PUBLISHED : Thursday, 12 September, 2002, 12:00am
UPDATED : Thursday, 12 September, 2002, 12:00am

With China's evolution towards a market economy, and accession to the WTO, antitrust and competition law has increasingly been a topic for discussion on the mainland.

Since 1993, competition in China has been regulated by the PRC Anti-Unfair Competition Law. However this law is directed principally at combating misleading and deceptive conduct, infringements of certain intellectual property rights (including well-known goods, trade names and trade secrets), false advertising and defamation of competitors. Additional provisions in the law also restrict the abuse of market power by monopolies, outlaw certain anti-competitive agreements and prohibit price manipulations by cartels.

Beyond this, however, antitrust has remained largely unregulated in China. In particular, the existing PRC legislation does not contain any provisions on merger control, which is very much at the heart of antitrust legislation in other jurisdictions.

The reason for this is largely historical - China previously operated a system of central economic planning, and in a planned economy, there is no need to regulate competition. A planned economy is essential a system of state monopolies.

However, over the past decade China has gradually dismantled its central planning system, and embraced a socialist market economy.

Central to the idea of a market is the process of competition. There are several perceived benefits of competition and generally these are what antitrust laws in market economies seek to preserve and promote. Essentially, the benefits of competition are lower prices, better product quality, wider choice and greater efficiency than would be obtained under conditions of monopoly.

In more developed jurisdictions, antitrust law is generally structured to deal with market failure on both the supply and demand side of the economy.

On the supply side, in order to ensure that businesses and consumers have adequate choices available to them and that there is adequate competition between producers, other more developed jurisdictions have regulations governing restrictive trade practices and abuse of market position, as well as merger control. On the demand side, there are regulations governing misleading and deceptive conduct to ensure that customers have adequate information to make informed decisions and to ensure that producers do not obtain an unfair advantage at the expense of their competitors.

Some laissez-faire market economies, such as Hong Kong, have eschewed the need for competition regulation (although even Hong Kong has recognised the need for antitrust-style regulation in some areas, for example telecommunications).

However there has been increasing recognition in legal and political circles in China that there is a need for China to implement its own antitrust laws.

In fact, an anti-monopoly law has been on the NPC's legislative agenda since as early as 1994, however progress has been slow, and arguably the Chinese market economy has only recently developed to a stage where antitrust regulation would be either necessary or sensible.

However, WTO accession and the fear of increased foreign competition have added greater urgency to the need for antitrust regulation in China.

The State Economic and Trade Commission ('SETC') reports that a preliminary draft of the PRC Anti-Monopoly Law has recently been completed - this is expected to be submitted to China's State Council shortly for review, prior to being presented to the National People's Congress Standing Committee, China's legislative body. The new law is unlikely to be in place until well into next year.

SETC has stated that the new law complies with international practice. Although a draft of the law has not been released to the public at this stage, it is possible to gain some understanding of the underlying philosophy of the draft law from the writings of PRC legal scholars who may have participated in the drafting process.

Chinese antitrust expert Professor Wang Xiaohua of the Legal Research Institute of the Chinese Academy of Social Sciences has written extensively on the topic, and recently presented a speech during an antitrust seminar for the NPC Standing Committee.

Professor Wang suggested that a Chinese Anti-Monopoly law should cover merger control, misuse of market position and also anti-cartel regulation.

There is a clear post-WTO element to the rationale behind the proposed law. For example, merger control is pitched to the legislators as a means of preventing multi-national companies acquiring domestic PRC companies and dominating the PRC market.

China does not currently have a takeovers code or a merger code, although SETC has prepared a draft for consideration by the NPC.

Professor Wang has stated that the draft Anti-Monopoly Law does not contain any specific provision for State-owned enterprises - it is unclear whether the implication is that SOEs would be excluded from the ambit of the law. If this were the case, this would appear to be contrary to WTO requirements.

Professor Wang also argues that China's antitrust law should have extra-territorial application - similar to that of many other developed jurisdictions such as the US and the EU - to regulate activity outside China that has a harmful effect on competition inside China. This would catch, for example, international price-fixing cartels.
Although the road to antitrust regulation in China has been a long one, the demands of a market economy and WTO accession suggest that time for antitrust in China has finally arrived. When it is implemented, the impact on foreign investors and China's trading partners will be significant.
Thanks to Fu Yu and Jessica Ong for their assistance in the preparation of this article.