Consumer concerns core of the issue

Antitrust probes are not targeted at foreign firms, to result in fairer prices

Chinese consumers could benefit from lower prices as more than 1,000 companies are being probed by antitrust investigators, a top legal expert says.

Wang Xiaoye, professor at the Institute of Law at the Chinese Academy of Social Sciences in Beijing, who advised the Chinese government on the introduction of anti-monopoly legislation, says the investigations may lead to Chinese consumers being given protection similar to what people in Europe and the United States have enjoyed for decades.

"In the development of a market economy in China, anti-monopoly protection has been an area where the law and enforcement has not been strict enough," she says.

"You hear complaints all the time from consumers, and it is important that the agencies enforce the law."

The China headquarters in Shanghai of Mercedes as well as the company's distributors in five cities were raided by authorities on Aug 4.

This followed a similar probe the week before when 100 investigators went into Microsoft's offices in four Chinese cities.

Other companies under investigation include other carmakers Chrysler and Audi as well as 12 Japanese automotive parts makers and US chipmaker Qualcomm.

Many consumer products in China are more expensive than in other markets. Some Apple products, including iPads and iPhones, are often almost 20 percent more expensive in China than they are in Europe or the United States. Many Chinese consumers include such items as "must-buys" when they go abroad.

A Chrysler Jeep 5.7L Grand Cherokee now retails at 800,000 yuan ($129,000), which despite a 50,000-yuan discount following a recent investigation of the company, is still 2.5 times its $50,000 price in the US. Some of the difference is accounted for by China's high import duties.

Automotive parts are a particular area of concern. In many cases consumers are forced to buy parts at high prices through dealerships since independent retailers are not allowed to stock them.

Jiang Liyong, partner at law firm Gaopeng and Partners in Beijing, says the government is now giving high priority to consumer protection.

"The authorities want to ensure the welfare of consumers and have been particularly active not just in these areas but in the financial services and the telecom sectors."

None of the major foreign companies being investigated has commented publicly on their individual cases.

The American Chamber of Commerce in China, or Amcham China, has also yet to issue a statement.

The European Union Chamber of Commerce in China said on Aug 13 that while anti-trust law is "beneficial for developing a healthy market economy in China" it had a number of concerns about the recent moves.

"In some of the industries under investigation, domestic companies have not been targeted for similar violations. Furthermore, in some cases that involve joint ventures, it has only been the foreign partner that has been named as being a party to the investigations."

James Zimmerman, a former chairman of Amcham China and managing partner of the Beijing office of law firm Sheppard Mullin Richter & Hampton, also says the recent moves raise issues for foreign companies operating in China.

"In the event of an investigation it is left for observation whether a foreign company will have any effective judicial remedy to counter a powerful investigating government agency.

"Overall, I am hopeful that in time China will take steps to adhere to the rule of law in anti-monopoly investigations; otherwise, China might be perceived as a regulatory bully."

Zhou Zhaofeng, counsel at international law firm Taylor Wessing in Beijing and vice-chair of the legal and competition working group of the EU Chamber of Commerce in China, says the test of bias against foreign companies has to be whether actions would be brought under US or EU law.

"If the answer to this is yes then we shouldn't put too much emphasis on any other motives behind these actions," he says.

"From what I have seen from news reports of these cases, particularly in resale price maintenance of auto parts and after sales service (of cars), as someone who studied competition law in Europe, there would be evidence of wrongdoings under EU law also."

Some have suggested that China might be in breach of its World Trade Organization membership obligations in targeting foreign companies under antitrust law.

But Jiang, who was formerly a Chinese Ministry of Commerce official with the WTO in Geneva, says that this cannot be the case.

"Competition law is actually not included in any WTO obligations to give equal treatment to foreign companies so we can't say that is discriminatory in this regard.

"When you look at the cases brought by the National Development and Reform Commission they are about 50/50 between with foreign and Chinese companies. The number of foreign companies investigated by the other regulatory body SAIC (the State Administration of Industry and Commerce) is very low."

Anil K. Gupta, professor of strategic management at the University of Maryland's Smith Business School, says it is difficult to see the recent investigations as part of some wider battle between China and the United States.

"There might be some sense of an established and emerging superpower rivalry between China and United States entering into the economic sphere but not in this case.

"A lot of the recent cases involve German companies, and China and Germany generally enjoy an excellent relationship."

Chinese antitrust legislation, which was largely modeled on EU law, came into force in 2008.

Previously, China had only an unfair-competition law, which related to copying brands and companies bribing customers to build market share. It remains in place.

Some of the most high-profile actions so far have been brought against Chinese companies and not foreign ones.

The one involving the biggest fine was against domestic producers of baijiu, the fiery white alcohol drink that is popular at banquets in China, for insisting that retailers could not sell the drink for less than a minimum price.

In February last year, Kweichow Moutai was fined $40 million, the highest imposed on a single company under the new law so far. Its competitor Wuliangye Yibin was fined $30 million.

Some of the penalties imposed on the foreign companies now under investigation could be higher.