China's competition policy reforms: The anti-monopoly law and beyond

Antitrust Law Journal

Volumn 75, Issue 1, 2008, Pages 231-265

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

^a STANFORD UNIVERSITY   (United States)

^b Washington DC office of Economists Incorporated   (United States)

^c Washington DC office of Economists Incorporated ^*

Author keywords

[No Author keywords available]

Indexed keywords

EID: 59149085479     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (98)

1. United States v. Topco Assocs., 405 U.S. 596, 610 (1972).
2. See Antimonopoly Law of the People's Republic of China (promulgated by the Standing Committee of the National People's Congress on Aug. 30, 2007 and effective Aug. 1, 2008) [hereinafter AML], available at http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=371229&pdmc= 11006. The translations provided in this article are the authors'. An unofficial English translation is also available as an appendix to Nathan Bush, The PRC Antimonopoly Law: Unanswered Questions and Challenges Ahead, ANTITRUST SOURCE, Oct. 2007, http://www.abanet.org/antitrust/ at-source/07/10/Oct07-Bush10-18f.pdf.
3. Anti-Unfair Competition Law of the People's Republic of China (promulgated by the Standing Committee of the National People's Congress on Sept. 2, 1993 and effective Dec. 1, 1993). (Translation available by subscription at http://www.chinalavvinfo.com.)
4. Article 9 of the Law of Commercial Banking of the People's Republic of China (effective May 10, 1995, as amended on Dec. 27, 2003), available at http://www.pbc.gov.cn/rhwg/19981802.htm (official Chinese text).
5. Article 14 of the Price Law (promulgated by the Standing Committee of the National People's Congress on Dec. 29, 1997 and effective May 1, 1998), available at http://www.gov.cn/ziliao/flfg/2005-09/12/content-31188.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
6. See Article 32 of the Procurement and Bidding Law (promulgated by the Standing Committee of the National People's Congress on Aug. 30, 1999 and effective Jan. 1, 2000), available at http://xinxiangxian.xx.gov.cn/lmz/ juwei/shenji/flfg/kjfg37.htm. (Translation available by subscription at http://www.clrsonline.com).
7. For China's current Patent Law (second revision), see http://www.npc.gov.cn/was40/detail?record=l&channelid=20179&searchword= %20(%20%D6%D0%BB%AA% C8%CB%C3%Fl%B9%B2%BA%CD%B9%FA%D7%A8%C0%FB%B7%A8+%29+and+% 28+IDS%3D%277370'%20). The third revision is now under review.
8. See Certain Provisions on Prohibiting Public Utility Enterprises from Committing Restrictive Acts Against Competition (promulgated by the State Administration of Industry and Commerce on Dec. 24, 1993), available at http://www.apeccp.org.tw/doc/China/Decision/cndec05.html.
9. See Rules on Prohibiting Regional Blockades in Market Economic Activities (promulgated by the State Council Apr. 29, 2001 and effective Apr. 29, 2001), available at http://www.people.com.cn/GB/shizheng/20010429/ 456075.html.
10. See Interim Provisions on Preventing Acts of Price Monopoly, Order [2003] No. 3 (adopted by the State Planning and Development Commission on June 18, 2003 and effective Nov. 1, 2003), available at http://www.sdpc.gov. cn/zcfb/zcfbl/zcfbl2003/t2005 0613-6683.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
11. See, for example, a Ministry of Commerce official's comment in 2004 that regional blockade was the major obstacle in forming a national market, available at http://www.icn.com.cn/Fujian-w/gnxw/20040623t/gn139079.html, and some National People's Congress Standing Committee members' comments in 2007 on the ineffective regulation of monopoly pricing, http://www.npc.gov.cn/ xinwen/lfgz/lfdt/2007-06/26/content-367777.htm.
12. Rules on Acquisition of Domestic Enterprises by Foreign Investors, http://www.xasmw.com/rule/content.asp?id=254 (unofficial Chinese text). A provisional rule that had essentially the same content on antitrust review was issued in 2003. Provisional Regulations Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (promulgated by Ministry of Foreign Trade and Economic Cooperation, State Administration of Taxation, State Administration of Industry and Commerce, and State Administration of Foreign Exchange on Mar. 13, 2003 and effective Apr. 12, 2003), available at http://tfs.mofcom.gov.cn/aarticle/date/i/s/200509/20050900366385.html. (Translation available by subscription at http://www.chinalawinfo.com.)
13. For a brief discussion of some of the problems in the M&A Rules, such as the use of the number of acquired enterprises "in related industries" and "market shares" as notification thresholds, see Su Sun, Antitrust Review in China's New Merger Regulation, ECONOMISTS INK, Winter 2007, available at http://www.ei.com/ink/Winter-2007.pdf.
14. See Antitrust Filing Guidelines, http://tfs.mofcom.gov.cn/ aarticle/bb/200704/20070404597464.html (official Chinese text).
15. The ABA Sections of Antitrust Law and International Law and Practice have made detailed comments on the Guidelines. See Am. Bar Ass'n, Comments of the American Bar Association Section of Antitrust Law and Section of International Law on The Guidelines on Antitrust Fillings for Mergers & Acquisitions of Domestic Enterprises by Foreign Investors (Mar. 3, 2007), available at http://www.abanet.org/antitrust/at-comments/2007/03-07/comm- PRC.pdf.
16. The drafting of a bill in China is usually done by the Commission for Legislative Affairs under the NPC. Other government bodies, such as the State Council and the ministries that would be responsible for enforcing the proposed law, also have the authority to draft a bill. Draft bills are sent to the NPC for its review. Bills can be enacted either by the plenary session of the NPC or by its Standing Committee. There are no legal requirements on the number of NPC reviews a bill must undergo before it can be approved. The number of reviews a bill receives from the NPC will depend on its importance, complexity, and the controversies it presents.
17. See Ming Shang, China's Competition Policy and Legislation in Development (Apr. 22, 2005), http://tfs.mofcom.gov.cn/aarticle/dzgg/f/ 200504/20050400081489.html.
18. The NPC Standing Committee members made a number of comments during their first review. See http://www.npc.gov.cn/zgrdw/common/zw.jsp?label= WXZLK&id=350218&pdmc=110106.
19. For the content of the six added provisions in the latest draft and some NPC Standing Committee members' comments during their second reading, see http://www.npc.gov.cn/zgrdw/flzt/index.jsp?lmid=15&dm=1520&pdmc=ch.
20. An official Chinese text of the AML can be found at http://www.gov.cn/ ziliao/flfg/2007-08/30/content-732591.htm.
21. See ABA, 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 (July 15, 2003), available at http://www.abanet.org/antitrust/at-omments/2003/07-03/ jointsubmission.pdf;
22. see also Am. Bar Ass'n, Joint Submission of the American Bar Association's Sections of Antitrust Law, Intellectual Property Law & International Law and Practice on the Proposed Anti-Monopoly Law of the People's Republic of China, May 20, 2005, available at http://www.abanet.org/ antitrust/at-comments/2005/05-05/commentsprc2005wapp.pdf; and the July 2005 Supplement, http://www.abanet.org/antitrust/at-comments/2005/07-05/ abaprcat2005-2final.pdf.
23. We made detailed comments on a similar, earlier draft of the AML. See Bruce Owen, Su Sun & Wentong Zheng, Antitrust in China: The Problem of Incentive Compatibility, 1 J. COMPETITION L. 8c ECON. 123 (2005). We agree with much of the commentaries on the draft law offered by the American Bar Association, supra note 21.
24. For a somewhat more detailed but less up-to-date discussion, see Owen, Sun & Zheng, supra note 22.
25. See STATE BUREAU OF STATISTICS, REPORT ON THE SECOND NATIONAL CENSUS ON BASIC ECONOMIC ENTITIES (Jan. 17, 2003), http://www.stats.gov.cn/tjgb/jbdwpcgb/qgjbdwpcgb/t20030117-61467.htm.
26. See Yingqiu Liu, The General Trends and Problems of China's Private Economic Sectors, J. CHINESE ACAD. SOC. SCI., June 2006, http://www.cpes.cass.cn/viewInfo.asp?id=351.
27. Id.
28. See Non-Public Economy Blooming in China, PEOPLE'S DAILY ONLINE, July 28, 2004, http://english.people.com.cn/ 200407/28/eng20040728-151132.html.
29. Leiming Wang, Lutao Shen & Sheng Zou, Five Comprehensive Government Restructures 1982-2003, XINHUA NEWS AGENCY, Mar. 6, 2003, http://www.people.com.cn/GB/shizheng/252/10434/ 10435/20030306/937651.html.
30. Efforts to adopt an administrative procedure law, however, have been underway since 2002.
31. 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-PAC. L. & POL'Y J. 9 (2003).
32. See Breaking Up Monopolies Key to the Restructuring of SOEs, LIAOWANG, Dec. 13, 2006, available at http://news.xinhuanet.com/ politics/2006-12/13/content-5480196.htm.
33. See State Assets Supervision and Management Commission, Guidance on the Restructuring of State Capital and State Owned Enterprises (Dec. 18, 2006), http://fmance. sina.com.cn/g/20061218/11133173443.shtml;
34. see also SOEs to Maintain Overwhelming Control in Seven Sectors, XINHUA NET, Dec. 19, 2006, http://news.xinhuanet.com/fortune/ 2006-12/19/content-5504591.htm.
35. Id.
36. Id.
37. Id.
38. In truth, it is not at all clear whether China needs to maintain strong controls by SOEs in what it considers to be strategic or important economic sectors. At least one prominent economist has pointed out that the purpose of such State ownership in those sectors can be accomplished equally well by strict government regulations and strict law enforcement. See Lawrence Lau, The Dual Dilemmas of SOE Reforms, CAIJING MAGAZINE, Oct. 31, 2005, http://www.ccmedu.com/bbs2-4724.html.
39. Some argue, however, that SOEs may have stronger incentives to act anticompetitively. See David E.M. Sappington & J. Gregory Sidak, Competition Law for State-Owned Enterprises, 71 ANTITRUST L.J. 479 (2003). For SOEs to compete efficiently, competition must be an explicit goal of the government as equity owner in the firms.
40. State Council Doc. No. [2005] 3, Feb. 25, 2005, http://www.china.org.cn/ chinese/PI-c/795128.htm (unofficial Chinese text).
41. The four private airlines are Aokai Airlines, based in Tianjin; Chunqiu Airlines, based in Shanghai; Yinglian Airlines, based in Chengdu, Sichuan Province; and Dongxing Airlines, based in Wuhan, Hubei Province.
42. The private company that was allowed to provide call center services was Dongxing Guolu.
43. See China Telecom and China Netcom Reaching Agreement Not to Compete for Landline Customers, BEIJING MORNING DAILY, Feb. 27, 2007, http://tech.sina.com.cn/t/2007-02-27/01011391578.shtml.
44. AML, supra note 2, art. 7.
45. Id.
46. Malignant Competition Among SOEs in Shanghai's Maritime Shipping Industry, http://news.tom.com/2006-09-22/0016/78319004.html.
47. Dairy Companies' Trust Crisis, ECONOMIC REFERENCE NEWSPAPER, July 31, 2005, http://chanye.finance. sina.com.cn/sp/2005-07-13/256435.shtml.
48. Ge Ling, Malignant Competition Rampant in China's Household Appliances Industry, PEOPLE'S DAILY ONLINE, May 11, 2005, http://homea.people.com.cn/GB/41394/3379837.html.
49. Low Price Competition, Malicious Cycle: What China's 10,000 Travel Agencies Should Do? XINHUA NET, Mar. 18, 2005, http://www.ln.xinhuanet.com/wangtan/djjz/lxsdjjz.htm.
50. See, e.g., Long Yongtu: Excessive Competition Among Domestic Companies the Root Cause of Antidumping Cases, June 13, 2005, http://finance. anhuinews.com/system/2005/06/13/001282695-shtml.
51. See Selected Comments on the Draft AML, NPC Standing Committee, June 30, 2006, http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id= 350218&pdmc=110106.
52. 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 attempted price cartel was not successful, however.
53. See State Economic and Trade Commission (SETC), Opinions on Self-Disciplinary Prices Adopted by Some Industries, Aug. 17, 1998, http://www.law999.net/law/doc/c001/1998/08/17/00107286.html. Ironically, before its abolition in the 2003 government restructuring, SETC was one of a few government agencies in charge of drafting the AML.
54. See MOFCOM and Customs Authority Circular 36 of 2003, Advance Approval Requirement for the Export of Thirty-Six Goods, Nov. 29, 2003, http://wwwl.customs.gov.cn/Default.aspx?TabID=433&InfoID= 11070&SettingModuleID=1427.
55. The antitrust problems associated with those competition-limiting policies were perhaps first brought to the attention of the Chinese policy makers by three antitrust lawsuits filed in the United States in 2005 and 2006 alleging price fixing by Chinese exporters of Vitamin C, magnesite, and bauxite.
56. See Selected Comments on the Draft AML, supra note 49.
57. See, e.g., id., Comments by Mr. Zheng Gongcheng.
58. AML, supra note 2, art. 5 ("Enterprises may voluntarily consolidate and conduct lawful combinations through fair competition to expand business scopes and increase competitiveness.").
59. See also The Draft AML Both Prevents Monopolies and Allows Bigger and Stronger Enterprises, XINHUA NEWS NET, June 24, 2007, http://news.xinhuanet.com/legal/2007-06/24/content-6284628.htm.
60. AML, supra note 2, art. 11.
61. Id. art. 16.
62. Id. art. 15.
63. 288 U.S. 344 (1933). Similarly, as noted above, Article 15 of the AML exempts agreements among competitors to alleviate declines in sales volumes and production over-capacity during economic downturns. See id.
64. The U.S. practice had been to treat price-fixing agreements as per se illegal under the Sherman Act. In Appalachian Coals, however, the U.S. Supreme Court held that the creation of an exclusive joint selling agency by 137 Appalachian producers of bituminous coal was reasonable and therefore did not violate the Sherman Act. In so holding, the U.S. Supreme Court was gready influenced by the dismal conditions in the industry caused by the Great Depression. Seven years later, however, the U.S. Supreme Court reversed course. In United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), the Supreme Court rejected the approach it took in Appalachian Coals, and unequivocally reaffirmed the per se rule for horizontal price fixing.
65. See Carlyle Agrees to Hold Minority of Xugong's Shares, SOHU BUS. ONLINE, Oct. 17, 2006, http://business. sohu.com/20061017/n245845506.shtml.
66. For example, on March 16, 2007, China's National People's Congress adopted the amended Corporate Income Tax Law that would abolish the preferential corporate tax treatment currendy enjoyed by foreign-invested companies. In December 2005, China's Securities Regulatory Commission imposed a moratorium on new foreign investment in Chinese securities brokerages. In August 2006, China's Banking Regulatory Commission announced a requirement that foreign banks incorporate their local operations in China if they want to engage in RMB-denominated business with Chinese individuals. While these restrictions technically do not violate China's WTO commitment, and some indeed may be well justified, foreign investors have criticized them as steps in the wrong direction. See Statement of John R. Dearie, Testimony Before the U.S.-China Economic Security Review Commission (Aug. 22, 2006), http://www.uscc.gov/hearings/2006hearings/written-testimonies/06-08-22-23wrts/ 06n-08-22-23-dearie-john.php.
67. In 2006, China saw a 4 percent decrease in foreign investment compared with the year before. See Ariana Eunjung Cha, China Gets Cold Feet for Foreign Investment: New Regulations Spawn Fears of Economic Nationalism, WASH. POST, Feb. 2, 2007, at Dl.
68. See Rebecca Buchman, China Hurries Antitrust Law, WALL ST. J., June 11, 2004, at A7.
69. On January 17, 2007, The Shanghai No. 1 Intermediate People's Court heard claims by a local Chinese company that Sony and its joint venture in China engaged in unfair competition by designing their digital cameras to shut down when batteries made by competitors are installed. The court did not rule at the end of the hearing and the case is still pending.
70. See AML, supra note 2, art. 31.
71. According to a government report released in September 2007, China does not face an imminent risk of monopolies by foreign companies in any industry. See Jiang Wei, No Threat of Foreign Monopoly in Any Industry, CHINA DAILY ONLINE, Sept. 10, 2007, http://www.chinadaily.com.cn/bizchina/2007-09/10/content-6092857.htm.
72. See AML, supra note 2, arts. 32-37.
73. See Xiaodong Xie, Anti-Administrative Monopolies Chapter Deleted in Entirety from Draft Antimonopoly Law, PEOPLE'S DAILY ONLINE, Jan. 11, 2006, http://www.people.com.cn/GB/ 54816/54822/4016799.html.
74. See State Council Approves Draft Antimonopoly Law Without Chapter on Administrative Monopolies, PEOPLE'S DAILY ONLINE, June 8, 2006, http://finance.people.com.cn/GB/1037/4448654.html.
75. See Na Liu, Draft Antimonopoly Law on Schedule for Review; Chapter on Administrative Monopolies Added Back In, ECON. OBSERVER, June 25, 2006, http://info.finance.hc360.com/2006/06/ 25102650097.shtml.
76. However, the ban on discount air tickets was frequently ignored by the airlines, and the ban was finally lifted in early 2003.
77. Seejianjun Wang, Special Interests the Greatest Obstacle to Market Development, LIAOWANG NEWS WKLY, Dec. 13, 2006, http://news.sohu.com/20061213/n247014585-1.shtml.
78. See Anti-Administrative Monopolies Chapter Deleted in Entirety from the AML, PEOPLE'S DAILY ONLINE, Jan. 11, 2006, http://www.people.com.cn/GB/54816/54822/4016799.html.
79. Id.
80. Id.
81. See, e.g., Ya Jie, Antimonopoly Law Must Address Administrative Monopolies, CHINA INDUS. & BUS. TIMES, Apr. 19, 2006, available at http://biz.163.com/06/0419/ 10/2F2JTINE00021RH4.html.
82. The relationship between the central and local governments has been problematic since the Zhou Dynasty (1122 B.C.-225 B.C.) and remains so today. One of the most dramatic episodes of the "central versus local governments" problem is the civil war waged by Emperor Kangxi of the Qing Dynasty in the 1670s against three feudal lords, who were granted their fiefdoms as rewards for their contributions to the establishment of the Qing Dynasty but who later grew defiant of the orders of the Emperor. The war, spanning eight years and spreading to almost half of China's territory at the time, ended with a complete victory for the Emperor.
83. China's antitrust rules prior to the AML already contained some variants of the prohibition of administrative monopolies. For instance, Article 30 of the 1993 Anti-Unfair Competition Law prohibits restrictions on competition by using administrative power (supra note 3), and the 2001 Rules on Prohibiting Regional Blockades in Market Economic Activities specifically bans regional blockades (supra note 9). Therefore, including the prohibition of administrative monopolies in the AML preserves continuity in the treatment of administrative monopolies.
84. AML, supra note 2, art. 51 (emphasis added).
85. It seems that China's antitrust policy makers are well aware of this point. An earlier draft AML, released in June 2006, points out that the furtherance of reforms of the government functions are needed to rein in the abuse of administrative power that harms competition.
86. The U.S. Constitution grants Congress the power to regulate interstate commerce in the so-called Commerce Clause. By negative implication, the U.S. Supreme Court holds that states do not have the power to regulate interstate commerce. This so-called Dormant Commerce Clause doctrine played a vital role in striking down state regulations that were aimed at or had the effect of blockading the commerce of other states. See, e.g., Granholm v. Heald, 544 U.S. 460 (2005) (ruling that New York and Michigan laws allowing in-state wineries to ship wine to consumers directly but prohibiting out-of-state wineries from doing the same is unconstitutional); Philadelphia v. New Jersey, 437 U.S. 617 (1978) (invalidating a New Jersey law that prohibited the importation of most solid or liquid waste which originated or was collected outside of the territorial limits of New Jersey); Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935) (holding that New York may not protect its local interests by limiting access to local markets by out-of-state milk sellers); Gibbons v. Ogden, 22 U.S. 1 (1824) (invalidating New York's grant of steamboat monopoly).
87. Under the federalism doctrine, the U.S. federal government can only exercise power granted by the U.S. Constitution. The U.S. Supreme Court has used the federalism doctrine to invalidate federal laws that had the purpose or effect of limiting competition. Most notably, in 1935, in the "sick chicken" case, the U.S. Supreme Court stuck down one of the most dramatic efforts by the Roosevelt administration to stabilize the U.S. economy during the Great Depression-the National Industrial Recovery Act of 1933 (NIRA). See Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). Enacted to combat falling prices and intensifying competition during the Great Depression, the NIRA authorized the President, ordinarily upon application by trade associations, to promulgate "codes of fair competition" for the trade or industry. Several hundred codes were adopted in accordance with the NIRA. The codes usually contained provisions concerning minimum wages and prices, maximum hours, and unfair trade practices. In 1935, the Supreme Court struck down the entire Act, holding that in enacting the Act, Congress exceeded its commerce power and unconstitutionally delegated its legislative power. Interestingly, there seems to be a striking resemblance between the "codes of fair competition" authorized under the NIRA and the "industrial self-discipline" authorized by the Chinese government today. See discussion of the "industrial self-discipline," infra Part IV.B.
88. See SAIC, Functions, Organization, and Staffing of the Bureau of Fair Trade, based on information shown on Sept. 16, 2006, http://www.saic.gov.cn/zhzjg/jig-3.html.
89. See SAIC, Multinational Companies' Competition Restricting Behavior and Counter Measures, SAIC Pub. No. 5 (2004).
90. See MOFCOM Establishes Antimonopoly Investigation Office, CHINA NEWS NET, Sept. 17, 2004, http://www.china.org. cn/chinese/2004/Sep/661853.htm. Noticeably, this was a few months after the release of the SAIC report on multinational companies.
91. See Rules on Acquisition of Domestic Enterprises by Foreign Investors, supra note 12.
92. AML, supra note 2, art. 9.
93. Id. art. 10 ("The agency designated by the State Council as the agency responsible for antimonopoly enforcement (hereinafter "Anti-Monopoly Enforcement Agency") shall be responsible for anti-monopoly enforcement under this law.").
94. Id.
95. See id. art. 14.
96. See id. art. 17.
97. See id. art. 44.
98. See generally Ken Heyer, A World of Uncertainty: Economics and the Globalization of Antitrust, 72 ANTITRUST L.J. 375 (2005).