• Tue
  • Sep 23, 2014
  • Updated: 7:16am
Monitor
PUBLISHED : Friday, 23 August, 2013, 12:00am
UPDATED : Friday, 23 August, 2013, 3:49am

ParknShop merger will prove Hong Kong's competition law is a joke

Regulations forbid industry players from conspiring to fix prices but there is nothing to prevent mergers that give market dominance

Anywhere else in the world, regulatory alarm bells would be clanging at ear-splitting volume.

Not in Hong Kong.

Earlier this week, mainland grocery giant China Resources Enterprise confirmed it is bidding to acquire the ParknShop supermarket chain from Li Ka-shing's Hutchison Whampoa.

ParknShop is a familiar sight in Hong Kong, with 286 stores in the city under brands ranging from Taste and Gourmet, to Great and Su-Pa-De-Pa.

Depending whose figures you take, it is either the biggest or second-biggest supermarket chain in the territory, with a market share of somewhere between 30 and 40 per cent, about the same as its co-duopolist, Jardines-owned Wellcome.

In third place is relative newcomer Vanguard, with a market share of about 8 per cent.

However, Vanguard is owned by China Resources Enterprise, which means if its bid for ParknShop were to succeed, China Resources would immediately become the dominant participant in Hong Kong's supermarket sector, with a market share approaching 50 per cent.

In other developed markets, a deal like this would quickly attract the attention of the local competition regulators, who would subject the proposed merger to severe scrutiny, asking whether the formation of such a massive player was really in the customer's interest.

In all likelihood, they would impose strict conditions on the acquisition, requiring the merged company to divest a number of its stores to ensure competition wasn't damaged.

But if you are expecting the same sort of regulatory scrutiny in Hong Kong under the new competition law passed in June last year, then you are going to be sadly disillusioned.

If Li gives the China Resources bid his nod, our newly appointed competition commissioners will let the deal sail through without even batting so much as an eyelid.

For one thing, the provisions of the Competition Ordinance haven't yet come into force.

Although the law was passed more than a year ago, progress towards implementation remains glacial. The government only got around to appointing 14 worthies as competition commissioners in May. As yet, the new regulator has no staff, no offices and no website.

At this rate, the commissioners are unlikely to choose a chief executive before next year. Only then will the new regulator begin recruiting staff and drawing up guidelines. As a result, lawyers don't expect enforcement operations to begin before the middle of 2015 at the earliest, fully three years after the law was passed.

But even if everything were in place and ready to go today, Hong Kong's new competition regulator still wouldn't cast its eye over the China Resources bid for ParknShop.

Even if it were Jardines acquiring ParknShop to set up a super-grocer controlling 75 per cent of the market, they wouldn't lift a finger.

That's because under Hong Kong's new law, rules prohibiting the abuse of market dominance do not apply to mergers and acquisitions.

The only exception is in the telecommunications sector, where anti-competitive deals between players were already forbidden anyway.

This exclusion of mergers and acquisitions makes a joke of Hong Kong's whole competition law. It forbids different players in the same business from conspiring to fix their prices. But it does nothing at all to prevent them merging so that they can rip off their customers untroubled by any competitors.

With a little political leadership, the law could easily be amended to cover mergers in all sectors.

But at the rate Hong Kong's government is moving, any revision will come years too late to do anything about a China Resources takeover of ParknShop.

tom.holland@scmp.com

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This article is now closed to comments

johnyuan
With a population of 7 million plus (probably many more) WalMart or Carrefour will not sneer at. Just work out the logistic operating from Shenzhen and the market is here for them to take. CY Leung, here is a solution to Hong Kong’s livelihood problem.
Giwaffe
Hopefully, the law will allow reviews of current market practices to allow for a future breakup of monopoly/oligopoly. It's really too bad Hong Kong isn't walking down the path of good ol' Sherman, given how such breakups typically benefit the consumer and is in the public interest.
johnyuan
It is very difficult for Hong Kongers who haven’t lived in a real competitive city to realize the real competition in the market is measured by how cheaply is for food and rent and transportation for daily life. Most Hong Kongers aren't marching on these livelihood issues. Perhaps it is due to a mental block thinking the shoebox size flat they own worth millions of HK dollars. The future is still bright as long it is so. So, CY Leung must go if you mess this up.
SpeakFreely
It is not just the lack of competition, on the bigger picture what drives Hk into a quasi monolpy economy is the cost of properties manipulated by developers and government for years. This basically explain why our grocery or other things are so expensive and yet we have to exploit low wage workers or a low $30 hr job and we consumers has to pay anywhere 50 to 80% more than I pay for in US.
Any new owner will face the same issue, rent. So they probably can only survive by increase pricine, lower food quality n choices, and push employees to do more...simple math?
Camel
Again, this is only creating a Mailand phopia against Mainland companies like China Resources. What is the problem when China Resources is taking over ParknShop?
If Jardin (owner of Welcome) is bidding for ParknShop, that would be an issue of monopoly.
tranquilben
camel, you know where the airport is.
anson
I think you are misunderstanding the concerns a little bit. Many people support Vanguards entry into the market because it can offer an alternative and more competition in the supermarket industry. This does not caste these people as pro-China or pro-Mainland. By the same token people are horrified to learn that Vanguard may now own Park n Shop because the potential competition has now morphed into an even less competitive market than the one we had before. People who oppose this merger/takeover are not anti-China or anti-Mainland. They are normal HK consumers who tire of the lack of choice and higher prices that result from a duopoly controlling the market.
johnyuan
It is pertinent for Hong Kong to get their food only from supermarkets or grocery stores where exorbitant rent is exacted. So finally I come to understand even a little more. So Hong Kong lost two landmark quality indoor markets – perfectly designed for the purpose, and numerous wet street markets. By godly, should one man’s want overrides our way of life, a culture and our wallet? I am amazed by the meekness of the public and cleverness of the disguised government through its urban renewal agency to achieve all THESE. So eat our ‘expansive rice’ – no more riceshops?!
caractacus
The Regulations against price fixing are a joke if they are never enforced. Why do the 5 petroleum companies all charge identical prices, yet are never brought to book?
johnyuan
The French Carrefour supermarket chain despite its hundreds shops and long history operating in China, its absence in bidding for the PnS in Hong Kong is conspicuous. Either it is still seething of its failed operation and experience in Hong Kong. (Its first waterloo was that its shared suppliers with the local supermarkets stopped to provide service). Or it got smart. Carrefour in Hong Kong then had to pull out and went north across the border. Years later, its second attempt didn’t even get a place – no landlord was willing to give Carrefour a lease.
…….
Whoever going to takeover PnS, the likelihood that pricing on supermarket food would come down is slim. High rent will still persist unless LKS has a change of heart to lead and exert influence in reduction of rent. Other than that, other option would be for Hong Kong people to order grocery from Carrefour in Shenzhen and deliver to your door. That is, escaping from local rent extortion and profiteering from lack of competition.
……
In fact, it doesn’t require PnS to be sold for Carrefour makes its third attempt in Hong Kong -- successfully. CY Leung, if you go along with the idea, you will get thanks from many in Hong Kong and personally you will be seen by Central Government as the first one to integrate Hong Kong with Shenzhen that locals all appreciate.

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