Consumer concerns core of the issue(2)

Audi, part of FAW-Volkswagen in China, one of the more high-profile companies being investigated, may be fined 1.8 billion yuan ($292 million), according to an undisclosed company source quoted in The Economic Observer newspaper in China.

Yet the fines and penalties that have been imposed in China remain a mere fraction of those applied in the EU or in the US.

In March this year, the EU fined two EU and four Japanese companies nearly 1 billion euros ($1.34 billion) for fixing the price of components in the car and truck industry.

In the US, the UK and Ireland, company executives can also be sent to jail and often are because the sanctions are criminal as well as civil.

Tetsuya Kumida, a former executive of a US subsidiary of a Japanese automotive products supplier, was sentenced to prison for 12 months and one day last year. Gary Walker, a former executive in the US of another Japanese auto parts company was sentenced to 14 months in jail last year.

Sebastien Evrard, partner of international law firm Jones Day in Hong Kong, says some of the media coverage of the recent probes has failed to pick up that the Chinese antitrust regime is not as severe as in other jurisdictions.

"There are no criminal sanctions in China unless you happen to kill an investigator. I think if you are a business executive in the United States where there is a possibility of going to prison you think about it (anti-trust activity) twice."

The fines imposed have been smaller in China than in the EU because of more relaxed interpretations of what constitutes a company's turnover.

They are imposed at both 1 and 10 percent of turnover in both jurisdictions. However, in the EU this is applied to a company's global sales, whereas in China it is often country turnover or even the sales of a specific product in the country.

"This is why you get this difference in the scale of the fines. The ones in the EU often run to hundreds of millions of euros and we have the recent one that was more than one billion euros," says Zhou at Taylor Wessing.

Three different government agencies are responsible for policing antitrust legislation in China.

The Ministry of Commerce itself is responsible for mergers, making sure that no one or group of companies have too strong a position in a particular market. The National Development and Reform Commission, China's strategic planning body, deals with issues relating to pricing and the SAIC deals with other competition issues that are not price related.

These agencies combined perform the equivalent role of the Department of Justice and the Federal Trade Commission in the United States.

In the EU, each of the 28 member states has its own competition authority alongside one over-arching European Commission body, which sets the framework for many of the laws.

Evrard at Jones Day says it may be simpler if China had one regulatory body, as some have suggested, but it is difficult to argue that the current regime is more complex than in other jurisdictions.

"In Europe you are effectively dealing with 29 competition authorities. In terms of China I think it would be better if they had one since it would be more efficient from a government operational perspective. In terms of companies themselves I don't think it makes any difference that they are dealing with three bodies."

Some see the recent antitrust cases as the regulatory machinery finally cranking into gear after six years in operation.

Over the past 18 months there have been a number of significant cases, besides the baijiu one.

Last August six infant formula makers, including US company Mead Johnson Nutrition and French giant Danone, as well as four other companies, were fined a total of $110 million.

However, some were not unique to China. Six LCD panel manufacturers, including South Korean companies Samsung and LG, were fined 353 million yuan by the National Development and Reform Commission for price fixing. This case followed an investigation not only in South Korea but also in the EU and the US. China's coming into line with other jurisdictions is typical of many actions against foreign companies in the country.

Mark Waha, a partner at law firm Norton Rose Fulbright in Hong Kong, says there is a sense of the regulatory regime coming of age.

"We are now celebrating the sixth anniversary of these rules. They are quite complex and it is important to remember that the authorities are not very well resourced. People talk about these massive Ministry of Commerce, State Administration for Industry and Commerce and National Development and Reform Commission organizations, but the people who are entrusted with enforcement are very few," he says.

Many experts also believe Chinese companies have started to use competition law as a business tactic against their competitors, as has been the case in the West for many years. A number of the recent cases against foreign companies are believed to have arisen as a result of issues raised by Chinese companies.

Evrard at Jones Day says: "It is essentially a tactic and it was something that wasn't used much in China until the last nine months."

Jiang at Gaopeng and Partners believes Chinese companies have greater confidence about using the law to their advantage.

"They are becoming like Western companies in their use of the law and using it as a tactic or a weapon against foreign companies."

The question remains whether consumers will benefit as a result of the recent moves by the authorities.

Yale Zhang, managing director of Automotive Foresight, an automotive industry research consultancy in Shanghai, believes the foreign car companies have had it far too good for too long in China.

"Selling one premium car in China has been equal to selling 10 in the United States for a number of the luxury carmakers. They won't want to lose that profit for sure.

"The companies will resist as long as possible, perhaps by reducing the price of select models, but I think these moves will ultimately be good for consumers."