GM falls into China's anti-trust web
A new probe against GM shows that no foreign firm is immune from such anti-trust investigations, which could expand to other sectors and are likely to hurt profits and slow investment.
A widening web of anti-trust investigations has snared one of China's biggest overseas investors, with word that General Motors (NYSE: GM) has become the latest foreign company to be probed for monopolistic practices. News of this particular investigation shows that no one is exempt from such probes, since GM is one of China's oldest and largest foreign investors in the automobile sector and is quite chummy with longtime partner SAIC (600104), one of Shanghai's largest companies. Thus by potentially punishing GM, China's anti-monopoly regulator would also be punishing a leading Shanghai company, hurting its profits and potentially slowing its growth and future investment from GM.
As a longtime China watcher, I can say that this ongoing wave of investigations, some for anti-trust concerns and others for corruption, is unprecedented in the nation's move to a market economy over the last three decades. GM's ensnarement in the movement is a sort of watershed, as it shows that any foreign company could face such a probe in the current climate. As to what's driving this wave of probes, optimists might say it represents a true effort by Beijing to stop businesses from charging unreasonable rates for their products and services. Pessimists might say it represents a new wave of anti-foreigner sentiment in Beijing.
I would say the answer is probably somewhere in the middle, though perhaps more weighted towards the former view. China has been quite lenient towards foreign companies that came to the country over the last 20 years, imposing relatively lax oversight with regard to their pricing policies as they invested heavily in the nation's economy. So now that those companies are getting big profits from the market, Beijing leaders may simply feel it's time for them to behave more responsibly towards consumers.
I suspect this latest round of probes against the big car makers could follow a similar trajectory, ending in some small fines and agreements by the companies to lower prices. Such a move may look like a peaceful resolution on the surface. But it's likely to have a significant impact on the car makers' profits over the next few years. That profit erosion, combined with the fear of future similar uncertainties, could prompt many to significantly slow their new investment in the years ahead.
Bottom line: A new probe against GM shows that no foreign firm is immune from such anti-trust investigations, which could expand to other sectors and is likely to hurt profits and slow investment.