Monopolies probe rattles the cage
China's development has reached the stage where reforms are needed to rebalance the economy, exploit untapped potential and guide it onto the path of sustainable high growth. If there is one obstacle stalling progress it is the domination of key strategic industries by state monopolies. They have become powerful, well-connected vested interest groups that have stifled competition and private enterprise.
The passage of the anti-monopoly law in 2008 provided the legal framework for taking action against companies that abuse market dominance. Since then the country's central planning agency, the National Development and Reform Commission, has been itching to use the law against monopolies. The introduction this year of regulations on price-fixing under the anti-monopoly law helped clear the way. But the NDRC apparently took everyone by surprise last week by announcing that it is investigating China Telecom and China Unicom for monopolising internet broadband services. According to Xinhua the NDRC made the announcement through CCTV without consulting the relevant ministries or the telecom firms.
This has sparked a war of words with the Ministry of Industry and Information Technology, which regulates the telecommunications industry, with CCTV joining in to rebut criticism in a newspaper under the ministry that its reporting was unfounded and unprofessional.
It will be interesting to see how the investigation develops, given the sensitivity of the announcement and Beijing's usual preference for unity and consensus in the policymaking process. It is to be hoped that the open confrontation between two powerful ministries and the vigorous public debate that has followed do not prompt the leadership to rein it in.
As antitrust cases go it is unexceptional and not unlike the one last week in which two pharmaceutical companies were fined more than seven million yuan for controlling the market for a drug ingredient and driving up the cost of making a blood-pressure medicine. The NDRC says the two hugely profitable telecom companies account for more than two thirds of the broadband market and alleges they have used their dominant position to fix prices for access by other service providers. If found guilty they face fines of eight billion yuan.
But there is a bigger issue. State owned firms have used easy access to finance, raw materials and energy to tighten control of key sectors and become the most powerful lobbying group influencing government policy. They have effectively hijacked the reform process. The NDRC's move is therefore to be welcomed. Beijing should smooth over the differences to enable it to pursue its investigation. That would send a clear message putting other state monopolies on notice.