Antitrust in China: The problem of incentive compatibility

Journal of Competition Law and Economics

Volumn 1, Issue 1, 2005, Pages 123-148

  Owen, Bruce M ^a   Sun, Su ^b   Zheng, Wentong ^a  

^a STANFORD UNIVERSITY   (United States)

^b Economists Incorporated   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 27844470656     PISSN: 17446414     EISSN: None     Source Type: Journal    
DOI: 10.1093/joclec/nhi004     Document Type: Review

References (33)

1. Statistical Yearbook of China, at http://www.cei.gov.cn (visited 28 October 2004).
2. See Section 3 at http://www.stats.gov.cn/tjgb/jbdwpcgb/qgjbdwpcgb/ t20030117_61467.htm. (visited 28 October 2004).
3. Above, note 1.
4. See http://www.en.ce.cn/Business/Macro-economic/200407/29/ t20040729_1359090.shtml. (visited 28 October 2004). For detailed analyses of both pre-reform and post-reform structures of China's economy, see Gregory Chow, China's Economic Transformation, (London: Blackwell Publishers, Inc., 2002).
5. Wang Leiming et al., 'Five Comprehensive Government Restructures 1982-2003', Xinhua News (6 March 2003), available at http://www.people.com.cn/GB/shizheng/252/10434/10435/20030306/937651.html (visited 28 October 2004).
6. For example, faced with growing inventory and price drops, China's nine TV producers held a meeting in southern China in June 2000 to limit TV production and fix prices. The act was not successful but was widely criticized in the media.
7. State Economic and Trade Commission ('SETC'), Opinions on Self-Disciplinary Prices Adopted by Some Industries, 17 August 1998, at http://www.law999.net/law/doc/c001/1998/08/17/00107286.html. (visited 28 October 2004). Ironically, before its abolishment in the most recent wave of government restructuring, SETC was one of a few government agencies in charge of drafting China's first antitrust law.
8. The Forms and Features of Administrative Monopolies and Industry Monopolies, at http://www.sinolaw.net.cn/zhuanti/fld/fxpl/pl30.htm (visited 13 May 2001).
9. Ibid.
10. Anticompetitive behaviour by state-owned enterprises is by no means a problem limited to China. SOE's can engage in certain anticompetitive acts, such as predatory pricing, without the discipline of having to recoup short-term losses with higher prices later. Thus, such behavior is more likely than in the private sector and can continue indefinitely. David E.M. Sappington and J. Gregory Sidak, 'Competition Law for State-Owned Enterprises', 71 Antitrust Law Journal 479-523 (2003).
11. It is increasingly likely that the antitrust enforcement agency will be housed in the Ministry of Commerce (MOC). MOC is the result of government restructuring that combined several cabinet level agencies in 2002, and is generally considered a powerful ministry, with jurisdiction over China's domestic and international trade. This may give the antitrust enforcement agency considerable power and legitimacy.
12. Before 1994, China's telecommunication industry was monopolized by China Telecom, China's only telecommunication provider. In 1994, the Chinese government formed China Unicom, another telecommunication provider that competed with China Telecom in mobile phone and pager services. In 1999, China Telecom was broken up into two separate entities: China Mobile that provided mobile phone services and a new China Telecom that provided landline services. In the same year, the Chinese government issued landline licenses to several other newly formed companies to compete with China Telecom. In the next round of restructuring in 2002, China Telecom was further divided and integrated with other telecommunication companies to form two 'competing' landline providers: China Netcom based in Northern China and China Telecom based in Southern China.
13. The Wall Street Journal reported that on the eve of China's enactment of the antitrust law, many multinational corporations feared that they would become the law's first targets. Rebecca Buchman, 'China Hurries Antitrust Law', Wall Street Journal, June 11, 2004, page A7.
14. However, the ban on discount air tickets was frequently ignored by the airlines and the ban was finally lifted in early 2003.
15. Bruce M. Owen, 'Imported Antitrust', 21 Yale Journal on Regulation 441 (2004) spells out this point in greater detail.
16. In its congressional submission for the fiscal year 2001, the US Department of Justice Antitrust Division writes that the deterrence effect 'is perhaps the single most important outcome of the Division's work.' For detailed analysis, see Philip Nelson and Su Sun, 'Consumer Savings from Merger Enforcement: A Review of the Antitrust Agencies' Estimates', 69 Antitrust Law Journal 921-960 (2002).
17. Chinese Constitution. Art. 57 (1982) http://www.english.people.com.cn/ constitution/constitution.html (visited 28 October 2004).
18. Ibid, Art. 58.
19. The draft antitrust law in discussion was a work product of joint efforts by several government agencies under the State Council.
20. The Administrative Litigation Law, adopted in 1989, is often mistakenly translated as 'Administrative Procedure Law.' Actually, the Administrative Litigation Law of 1989 only concerns judicial review of administrative actions, and does not deal with the rule-making and adjudication processes that should be followed by administrative agencies. However, efforts to adopt an administrative procedure law have been underway since 2002.
21. For more details on China's judicial review of administrative actions, see Chris X. Lin, 'A Quiet Revolution: An Overview of China's Judicial Reform', 4 Asian-Pacific Law & Policy Journal 9 (June 2003).
22. Chinese Constitution, above, note, Art. 123 (1982).
23. See Li Wei, 'Judicial Interpretation in China', 5 Willamette Journal of International Law and Dispute Resolution 87 (1997).
24. For the text of this law, see http://www.apecweb.apeccp.org.tw/doc/China/ Competition/cncom2.html.
25. See, e.g. Costa Rica, Law on Promotion of Competition and Effective Defense of Consumers (Law No. 7472) (1995);
26. Jamaica, Fair Competition Act (1993), both in Organization of American States, Inventory of Domestic Laws and Regulations Relating to Competition Policy in the Western Hemisphere (Washington, OAS, 2002).
27. Mergers outside China that may impact China's market significantly are not unusual given that China has become a major market for many foreign companies. For example, in 1996, Germany's Mannesmann and Italy's Italimpianti, makers of specialized pipes for oil drilling, merged into a monopoly. The technology was suitable for developing countries only and China was the main buyer. Because the main market was outside Europe, merger notification was not required by the European Commission. See Eleanor M. Fox, 'International Antitrust and the Doha Dome', 43 Virginia Journal of International Law, 911, 922 (2003).
28. We are in agreement with much of the commentary on the draft law undertaken by the American Bar Association, and we do not belabor points that we believe the JSABA has covered adequately. Joint Submission of the American Bar Association's Sections of Antitrust Law and International Law and Practice on the Proposed Anti-Monopoly Law of the People's Republic of China (hereinafter 'JSABA') 15 July 2003. http:// www.abanet.org/intlaw/divisions/regulation/chin715II.pdf (visited 28 October 2004).
29. See comments from Shang Ming, Director of the newly established Antitrust Investigative Office in the Ministry of Commerce, on 16 September 2004, available at http://www.big5.china.com.cn/chinese/law/ 661991.htm. (visited 28 October 2004).
30. But, for a defense of the proposition that economic efficiency should not be sacrificed to political or other non-deontological goals, see Louis Kaplow and Steven Shavell, Fairness v Welfare (Cambridge, MA: Harvard University Press, 2002).
31. See JSABA discussion of definitions at 10-14.
32. The Merger Guidelines may be found at http://www.usdoj.gov/atr/public/ guidelines/horiz_book/hmg1.html (visited 18 October 2004). Market definition is discussed in Section 1.
33. See generally, Kenneth Heyer, 'A World of Uncertainty: Economics and the Globalization of Antitrust', US Department of Justice, EAG working paper 04-11 (Washington, US Department of Justice, 2004).