• Tue
  • Sep 30, 2014
  • Updated: 6:47pm
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

likingming
Fyi, most groceries in supermarkets in shenzhen have even higher prices !
johnyuan
Carrefour, here is your chance without my telling you so. I hope you didn't strike a deal with whoever in Hong Kong when you focused the mainland market that you would never come to Hong Kong again in any way and form.
bluefirestorm
@johnyuan,
Carrefour has sold their operations in Malaysia (to AEON) and Thailand (to Big C) and shut down their Singapore operations.
Highly unlikely that Carrefour would bid for the ParknShop business given these actions. In addition, the Carrefour operating model is generally a hypermarket rather than supermarket. It tends to operate with large store locations/space which is rather lacking in HK.
johnyuan
Thank you for the update. Hong Kong just luck out. I can't remember if WalMart also got chased out of Hong Kong too. It is also I believe absent in the PnS bidding. I believe there is one or more WalMart in Shenzhen which may make grocery delivery possiible to Hong Kong. I believe it is the only way for Hong Kong consumers to circumvent in paying exorbitant grocery bill beacause of exorbitant supermarket rent. Unbelievable of such parasitic way in making a BUCK.
SpeakFreely
With these local guys dominate the lease, no international companies like Walmart or Carefour will be interested. Plus HK mkt is too small!
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.
.
johnyuan
A population of 7 million plus (most likely many more), WalMart / Carrefour will not sneer such sizable market. They can be successful as long as they operate from Shenzhen and logistic faces no willful obstacle. I might have already thrown a monkey wrench in the PnS bidding. To stay competitive as a city, cheap food is essential. So CY Leung go for it.
johnyuan
I doubt it that Walmart / Carrefour would forgo a market with a population of 7 million plus -- it takes more than 10 supermarkets to serve NYC of 8.6 million properly if only the logistic can work from Shengzhen. The validity of this concept must be stressed that cost of food can be lowered in Hong Kong because exorbitant Hong Kong rent is circumvented. I might already have thrown a monkey rench (sp?) in this PnS bidding.
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.
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.

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