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  • Apr 16, 2014
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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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SpeakFreely
Hk people always suffer because of rent. In US Publix, grocery are anywhere 30% to 80% cheaper and fresher and more choices than Parknshop. Example, live mussel at around hk$30 per lb, NY cut steak USDA at hk$60 per lb, green salad a box $20 or sometime on sales, huge catalogue for hk$20. Service! Excellent as so many people helping you even take the cart out into your car, parking is free. Shopping is fun and not pressurized in hk. Note, Publix salad is better than Citysuper.
Publix Minimum pay is hk$ 50 to 70 per hour. A 15 year old student or an old lady in the 60 get about hk$50 an hour and easy job.
The answer to this is simple, better quality, cheaper price and better service and Publix, or Walamrt, are still making good profit. Why? The rent and logistic costs in Hk is killing everybody, consumers and business people. And in turn pushed the minimum wages.
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.
captam
Retail food markets should not be treated as ordinary commercial land for land premium assessment. It should be in a special category and conversion to ordinary retail space for non food items should not not be permitted.
Wholesale food markets already enjoy direct Government subsidization e.g. the government-operated fish and food wholesale markets which wastefully occupy large swathes of under-utilized prime waterfront property . ( the 5 sea piers at the Western wholesale food market are seldom used at all).
Since government subsidizes wholesale food importers why not extend this to retail food markets ?
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?
caractacus
You hit the nail on the head. The domestic HK economy is rigged by a squalid combination of property tycoons who own everything and crony politicians / officials.
honkiepanky
This article is fine as far as it goes, but fails to ask the larger question of why we have a duopoly in supermarkets in the first place. Supermarkets are not generally considered an industry naturally tending to oligopolistic structure; entry by new competitors is (should be) fairly easy.
As with most of our problems, the root issue here is HK's psychopathic land policies. The extreme difficulty of finding sites suitable for large-format supermarkets makes it impossible for new competitors to reach economic scale. And ever-tighter conditions in the rental market for retail space ensure that the benefits of hard-won success ultimately flow to landlords, not shop operators.
impala
Ah no, Mr Holland, you don't understand. It is the Free Market you see.

Free Market is good, government regulation is bad. Surely you can't say no to the Free Market? It is Free after all. And a Market. Yes yes, my precious, Free Markets is goods. Goods. And services too. Free Markets of goods and services. All very goods. Government regulation is bad, very bad. It wants to hurt us, my precious. It wants to take the Free Markets aways from us. Government bad.

Ask your libertarian colleague, Mr van der Kamp, he will explain it to you.
johnyuan
I counted a dozen different brand of supermarkets in New York City of 8.6 populations. So Hong Kong has three brands for a population of 7 million plus. What has gone wrong in Hong Kong? No wonder 'eat expansive rice' - so to speak in Cantonese dialect. No question about it that it is a livelihood issue for CY Leung. Reform.
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?
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?!

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