Transcript Competition Law in China: A Brief Introduction

Competition Law in China: A
Brief Introduction
ZHANG Xuezhong
Assistant Professor of Law
[email protected]
East China University of Politics and Law
Overview
1.
2.
3.
4.
5.
Introduction
Economic Structure Before 1978
Post Reform Economic Structure
Regulatory Structure in China
Attitudes of China’s Policy Maker towards
Competition
6. China’s Current Competition Law and
Policies
7. Features of China’s Draft Anti-Monopoly
Law
1. Introduction
 Antitrust to support capitalist free economy ;
 China’ pragmatic move from an planned
economy to a market economy;
 The need of means of mitigating ‘market
failures’;
 Principal source of competitive private
entrepreneurial activity;
 Efforts to promote the use of competitive market
solution to production and allocation of goods
and services.
2. Economic Structure before 1978
 Before 1978, a centrally planned economy;
 In rural areas, farms were first organized as cooperatives,
then starting in 1958, as communes;
 Government’s planning agency directed to plant;
supplied inputs; collected predetermined quantities of
outputs at given prices;
 No sufficient info to arrange everything accurately and
efficiently;
 Farmers had little incentive to work hard;
 The system proved to be disastrous, and adjustment
were made to allow farmers to work on their for-privateuse land, but only to a limited extent, until the current
reforms began in 1978.
 The inefficiency of central planning was
repeated in the industrial sector;
 All enterprises state-owned before the 1978
reform;
 Plans for the production and distribution at
all enterprises; Prices for all goods and
services;
 Worker assigned to enterprises and
guaranteed lifetime employment;
 Priority given to heavy industry, and terrible
waste and inefficiency resulted.
 Before 1978, China’s economy dominated
by the state; Private enterprises’ negligible
role;
 According to CSSB, In 1978, private
enterprises =0.2% industrial output; Stateand collectively owned =the rest of the
economy;
 Competition motivated by profits
condemned as a system of corrupt
capitalist systems.
3. Post Reform Economic Structure




In 1978, Deng initiated economic reforms;
Started in rural areas;
Household responsibility system;
Township and Village Enterprises grew
quickly and started to compete with SOEs;
Reform of SOEs
 Proved to be more difficult;
 SOEs reflected the central planning aspect of
the past; and existence of various gov agencies
relied on control over SOEs.
 SOEs’ complex functioning: Lack of
management training; social objective:
employment stability, etc.
 Contract responsibility system introduced in
1987;
 Many SOEs restructured into share-issuing
companies in 1997;
 Price system decontrolled.
 In 1992, China significantly accelerated its
pace of economic reform after Deng’s
inspection tour of the southern region;
 In the fall of 1992, the 14th Congress of
CCP : “socialist market economy” as the
central goal of China’s economic reform;
 In the following decade, far-reaching
measures to overhaul China’s SOE sector,
taxation, banking, and foreign currency
system.
 Private enterprises grew rapidly, and large
amounts of foreign investment flowed in.
 99% of the enterprises in China are small or
medium in size, with most of them funded by
private investment;
 According to CSSB (updated in 2004), China’s
SMEs =55.6% of the country’s GDP, 74.7% of
industrial production value added, 58.9% of
retail sales, 46.2% of tax revenues and 62.3%
of exports.
 But the largest enterprises in China are still
SOEs in such industries as electricity, railroads,
aviation, telecommunication, and banking,
where the state maintains de facto monopolies
or dominant firms.
4. China’s Regulatory Structure
 Government regulation and competition policy as
alternative ways to control the economy;
 China’s regulatory being transformed to one more
compatible with the requirements of a market economy;
 China’s need for government regulation;
 Strategic choice to retreat from non-essential industries
and other regulatory reforms;
 Administrative monopolies in China;
 Dealing with the problem of administrative monopolies
as one of the major goals of China’s draft anti-monopoly
law.
5. Attitudes of China’s Policy Maker
towards Competition
 Law enforcement depending on prevailing
attitude towards competition;
 China’s ambivalent attitude toward
competition;
 Problem created by administrative
monopolies and challenges posed the
M&A of domestic businesses by MNCs;
 Small and medium sized firms concerns.
6. China’s Current Laws and Policies
 Law for Countering Unfair Competition 1993;
--Tie-in sales;
--Price fixing;
--Bid rigging;
--Commercial bribery;
--Deceptive advertising;
--Coercive sales;
--Appropriation of business secrets.
 Too simplistic and largely related to consumer
protection.
Rules for Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors ( 2003, 2006)
 Applies only to foreign investors;
 Article 51: 4 conditions under which pre-merger
notification to MofCOM and SAIC is required: (1)
one merging party’s annual sales is above 1.5
billion RMB (approximately $180 million); (2) the
foreign party has acquired more than 10 other
domestic companies in related industries in the
past year; (3)one merging party’s market share
in China is above 20%; or (4) post merger
market share is above 25%.
 Article 52 describes how a hearing is conducted
when the authority thinks the merger will
probably result in undue concentration so as to
impede competition or prejudice consumers’
interests.
 Article 53: five conditions relating to merging
parties’ assets, sales, and market share inside
China under which mergers outside China
should be reported to China’ MofCOM and SAIC
for competition policy review. Allows China to
intervene in Mergers outside China.
 Allows China to intervene in mergers outside of
China.
Provisional Rules for Prevention of Monopoly
Pricing (by SDRC, effective November 11, 2003)
 Prohibits the abuse of ‘market dominance’ and infers it
through ‘market share in the relevant market,
substitutability of relevant goods, and ease of new entry’.
 Not specify how relevant market is defined or how the
inference of market dominance can be actually made;
 Prohibits also price coordination, supply restriction and
bid rigging;
 Prohibits government agencies from illegally intervening
in price determinations. (What would be legal price
intervention is not clear);
 Could lead to improper government intervention when
there is not a competition issue.
7. Features of China’s Draft AntiMonopoly Law







Efficiency objective;
Definition of monopoly;
Collusions among enterprises;
Market definition;
Publication of decisions;
Concentration Ratios
Monopoly pricing;







Price discrimination;
Mergers;
Administrative monopoly;
Enforcement agencies;
Penalties;
Judicial review;
Intellectual property rights issues;