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The Competition Commission said it sought information and surveyed workers from more than 30 wholesalers at the Aberdeen Wholesale Fish Market while investigating possible cartel behaviour among wholesalers last November. Photo: Handout
Opinion
Inside Out
by Marcus Pollard
Inside Out
by Marcus Pollard

As Hong Kong re-emerges as a global business hub, it needs a more robust competition policy

  • The city’s competition watchdog performs a vital role in enforcing the law and preventing anticompetitive behaviour by firms, but it is critically understaffed and its remit does not extend to the public sector
Marcus Pollard
Marcus Pollard
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As dawn rose over Aberdeen on a warm summer morning, bystanders at the wholesale fish market were surprised by the arrival of officials brandishing a search warrant. “Operation White Whale” last month by the Competition Commission saw a search for evidence of cartel conduct by fish wholesalers.

This latest high-profile action shows the determination of the regulator to be on the side of the consumer. But what does the Competition Commission’s report card look like, and what is holding back the full force of the law?

Compared to its law-enforcement peers, the Competition Commission is critically understaffed. This inevitably imposes a natural limit on the intensity and scale of investigations. The government does provide a healthy litigation war chest, but there is a need for greater resources and retaining of staff dedicated to daily enforcement.

One comment that is often heard is that the modestly sized agency has focused on low-hanging fruit. It is frequently said that the law is meant to protect businesses from monopolists who are thought to be lurking in the shadows. However, of the 56 companies prosecuted by the Competition Commission to date, more than half are small and medium-sized enterprises.

Meanwhile, the fears of big business over the costs of compliance or being targeted by a rampant regulator have not materialised. The largest fine by far, HK$150 million (US$19 million), was in a plea bargain deal last year related to alleged air-conditioning cartels, but is awaiting sanctioning by the Competition Tribubal.

The Competition Commission office in Wong Chuk Hang. Photo: Handout
The commission has rightly prioritised cartels in its enforcement activities as these are widely known to be the most harmful form of anticompetitive conduct. But cartel-busters overseas rely heavily on leniency programmes where immunity is offered to those who are willing to self-report and turn on their fellow price-fixers.

Cartels are by their nature secret, so detection is resource-intensive without the help of an insider. For example, the commission recently announced charges against a cartel relating to government information technology subsidies whose behaviour was only uncovered by the commission’s data screening of 14,000 funding applications to find evidence of collusion.

The commission does not publish statistics on how many leniency applications it has received. However, it is anecdotally clear that most cases stem from complaints – such as from aggrieved employees or suspicious customers – or from referrals from government agencies. There must be something different in Hong Kong that makes the allure of immunity inherently less attractive. The spirit of competition might not be as strong as in places where competition laws have been in place for many decades.

Regulators are frequently accused of taking too long to enforce the law, and doing so in esoteric sectors that are disconnected from consumers. Hong Kong has managed to largely avoid that and has delivered results in markets that have a direct consequence on consumer choice. For example, the commission in the past couple of years has brought about changes to long-standing business practices relating to car warranties, food delivery platforms and travel agents.
Foodpanda and Deliveroo have offered to amend their contracts with partnering restaurants to allow eateries to work with their competitors after coming under scrutiny from the Competition Commission. Photo: Dickson Lee
However, the activities of the government and many of the statutory bodies in Hong Kong remain exempt from competition rules. The public sector influences many markets and can hinder the development of competitive market structures through its behaviour. The commission’s role is unfortunately curtailed as it can only observe, advise and encourage exempted entities to deploy their economic activities in a competitive manner.

There has been no published “value for money” assessments of the Competition Ordinance. A crude comparison could contrast the roughly HK$120 million in annual government subvention with the total of around HK$29 million that has been paid into the public purse since 2015 as a result of financial penalties imposed on businesses.

But figuring out the city’s return on investment is not such a simple calculation. What is harder to quantify is the savings to society as a result of successful deterrence. What have we saved from cartel behaviour that has never happened or market abuses that were never carried out? Tribunal judgments are a sobering reminder of the consequences of when things go wrong.

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The commission has earned praise for its broader educational and advocacy efforts. There is widespread awareness today of the Competition Ordinance, and companies are investing to ensure they keep ahead of competition law risks.

As consumers and businesses, we should expect a more dynamic system leading to the long-promised land of healthy competitive markets. In October 1992, Chris Patten announced the ambition of “the development of a comprehensive competition policy for Hong Kong”.

It took 23 years to become a reality. Even after these first eight years of competition law enforcement, it is still a work in progress.

Competition policy could be a driving force at the heart of Hong Kong’s re-emergence as a genuine international business hub. To deliver those benefits to consumers and the business sector, public sector practices need to catch up with the requirements imposed on private companies and the resources dedicated to the commission’s activities need to be enhanced to better match their mission.

Marcus Pollard heads Linklaters’ Antitrust and Foreign Investment Group in Hong Kong

David Dodwell is away

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