New Hong Kong Competition Law could break dominance of two chains

Shoppers will be the big winners even though it may be a year before the new competition law takes effect, changing the supermarket landscape

PUBLISHED : Thursday, 31 January, 2013, 12:00am
UPDATED : Thursday, 31 January, 2013, 11:43am


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Like many people living in Hong Kong's big residential estates, Mrs Hui has access to only one chain supermarket in the shopping arcade downstairs from her North Point flat.

Since it is the only supermarket down my flat, I just shop and go without any opportunity to compare prices or the quality of the goods

"Since it is the only supermarket down my flat, I just shop and go without any opportunity to compare prices or the quality of the goods," she said. "If I need to shop for fresh meat, I have to walk a few blocks to the wet market which is outside our residential complex. But in the wet market, I would have more choices of goods and be able to compare the prices and quality."

The dominance of a handful of chains comes as no surprise to anyone in Hong Kong, and the reasons aren't difficult to fathom. Taking Hui's estate as an example, it is well known that the supermarket chain is part of the conglomerate that developed the complex and which also owns the shopping arcade, giving it the power to select tenants.

It's part of a long-running situation that leaves even the strongest of international companies struggling to break into the market. The French supermarket giant Carrefour was run out of town after four years, unable to find the right locations and with suppliers threatening to cut off stocks unless it ended its discounting.

And it's a far cry from the cutthroat competition and bargains to be had in the United States, where Hui spends much of her time

"Both Safeway and Walmart are equally far from my home," Hui said of her residence in San Francisco. "Recently, another supermarket called Albertson has opened in the neighbourhood, so I can have an additional choice. What attracts me most are the special offers of different items made by the different supermarkets, that determine which one I will go for grocery shopping for the week."

Meanwhile in Hong Kong, the two dominant supermarket chains, ParknShop and Wellcome, were last year forced to deny accusations of collusion following a study by the Federation of Trade Unions, which accused them of shifting prices up and down in tandem at some of their stores.

But a glimmer of hope for shoppers arrived in June, with the passing of the city's first Competition Law after more than a decade of wrangling. Now, the question turns to what impact the law will have - when the bodies set up to enforce it finally takes shape.

According to lawyer Adrian Emch who specialises in competition law, more than 100 jurisdictions already have such laws, including Canada, Australia, New Zealand and even Singapore. Singapore's law has been in place for around eight years, and even the mainland has such legislation. The US has the longest history of an effective anti-trust law, since the 19th century. So Hong Kong is considered a latecomer in this area.

But still, the Commerce and Economic Development Bureau says it does not have a timetable on when the new Competition Commission and a tribunal to review complaints will be set up. It estimates it will take at least another year to complete the preparation for the law to take effect. The law provides specific examples of serious infringements, which include agreements that fix prices, allocate markets and rig bids.

The rule prohibits anti-competitive abuse of "significant market power" by a single firm. Such abusive conduct can include, for example, pricing goods below cost to drive out competitors, and the refusal to supply essential goods or services.

New Consumer Council chief executive Gilly Wong Fung-han says the new law will serve to bring in competition and is expected to improve both market efficiency and protection of the consumer.

"More rigorous enforcement against cartels and abuse of substantial market power induce more competition, thus offer more protection to consumers," Wong said.

The consumer watchdog says it remains too early to forecast the exact change to the market landscape the new law will bring.

"We can't forecast how many supermarkets or outlets will exist in a shopping arcade following the launch of the new law. But we have a high hope that those which remain in the market will be of good quality in terms of the competitiveness of their prices as well as the quality and variety of the services and goods they provide," Wong said.

Coils Lam Wai-chun, who is well known for taking on big players in the convenience store market through his independent grocery chain 759 Store, also has high hopes for the new law.

"With the legislation, I would expect the court will decide what business practices are anti-competitive and against the law - that is what I would like to see," Lam said.

Controversy remains, however, over aspects of the Competition Law - not least the fact that most statutory bodies - set up by law but independent of the government - remain outside its scope. That is despite the fact that bodies such as the Trade Development Council, which runs the Convention and Exhibition Centre, arguably provide commercial services in competition with smaller players.

Lawmaker and barrister Ronny Tong Ka-wah, who has been fighting for a competition law since he was elected to the Legislative Council in 2004, said exemptions should be granted based on an assessment of the activities of individual statutory bodies, instead of an across-the board exemption for all the activities of those organisations.

Tong agreed certain organisations such as the postal service and public utilities should enjoy exemptions to ensure the stability and reliability of their service.

"However, for statutory bodies like the Trade Development Council, I would say the exemption should only be granted to the extent of its activities in trade promotion. The council's use of the Convention and Exhibition Centre to monopolise the event organising market should not be exempted," Tong added.

The council holds 45 per cent of the local exhibition market, according to three of its leading rivals, which complained to Legco about its exclusion from the law last year.

Tong said one of the best examples of the benefits of competition was the opening of the telecommunications market where consumers could now enjoy mobile and online services at a competitive price and of a high quality, brought about by fierce competition.

However, Tong says the benefits of the new law go beyond consumer protection, and Hong Kong should look at a bigger picture of how the law can improve the city's entire economy.

Tong says that because business owners are also consumers in their own right and because different sectors of the economy are interlinked, an effective competition law can help companies keep down their operating costs in a way that can sharpen Hong Kong's competitive edge in the global market.

"If there is no competition, I, as a lawyer, would have to bear a higher operating cost for staff, rental and even the purchase of law books," he said. "In return, I would have to charge my clients a higher legal fee while my clients will impose my legal cost on their clients.

"All these would add up to a higher overall cost and could make Hong Kong less competitive in the global market.

"In other words, business owners are also consumers. So the culture of competition is an important element to the Hong Kong economy."

Business owners are also consumers. So the culture of competition is an important element to the Hong Kong economy

Despite all the uncertainties surrounding the effectiveness of the new legislation, few people dispute that taking a step away from its traditional laissez-faire reputation and catching up with the rest of the world with a competition law will ultimately be good for Hong Kong.

"As an overall view, only very few people would cast doubt on the benefits of competition law or label it as a bad thing for consumers," Emch said.

"For small players, there are pros and cons. On the one hand, the big players, in theory, will find it more difficult to dominate the market under the law, which will provide more room for small players to do business.

"However, small players may need to seek legal advice to ensure they strictly comply with the law. But they may incur this cost mainly at the beginning, and overtime costs should decrease as small companies will get familiar with what they can do and cannot do. Once they know how to comply with the law, they can do business effectively."