China’s Anti-Trust Law, which was enacted on August 1, 2008, is expected to change China’s competition landscape.
For quite some time, the Chinese state dominated the economy, determining what to produce at what quantity and what to sell at what price. Even with the reform, the state still “monopolizes” such sectors as telecommunications, utilities, and petroleum with state-owned enterprises (SOEs) in the name of protecting the nation’s strategic interests. The protectionist policy has been criticized for behaviors such as charging excessively high prices, providing low-quality services, and receiving excessive profits and eroded the competitiveness of these companies as well.
It remains to be seen whether the new law would curb the monopolistic behaviors of SOEs holding lawful monopoly positions rather than on protecting those SOEs. But Li Rongrong, head of the State-owned Assets Supervision and Administration Commission (SASAC), unequivocally indicated that reorganization of SOEs, especially those administrated by SASAC, deems to be beneficial to the national economy and will be exempt from anti-trust examination. Apparently, the ongoing reorganization in China’s telecommunications sector falls into this category.
However, the Anti-Trust Law will keep a close eye on multinational corporations (MNCs) having operations in China. Many of them have occupied dominating positions in the Chinese market, thereby being perceived to have negative effect on the development of China’s national economy and public interest.
Dong Zhengwei of Zhongyin Lawyer, a Chinese law firm, filed a charge against Microsoft with China’s Ministry of Commerce (MOFCOM), State Administration of Industry and Commerce (SAIC), and National Development and Reform Commission (NDRC) for its monopolistic practices and requested a fine of $1 billion levied on the software giant.
According to the petition, Microsoft dominates in China’s operating system and office software market as 70% of the PCs used in China are installed its software. It is estimated that Microsoft sold some RMB41.4 billion ($5.4 billion) worth of these two products in China in 2007. Given China’s largest Internet user base in the world – 253 million as of the end of June 2008 and 20% annual growth of PC sales, Microsoft’s position in China could only be more significant in the years to come. In the meantime, by way of market and technology monopoly, Microsoft has hurt other software vendors that develop products such as Linux operating system and office software packages.
Separately, on the occasion that the Anti-Trust Law took effect, Chinalabs.com, an Internet and IT consultancy, issued a report surveying the monopolistic situation in China’s high-tech industry such as Internet, media, software, PCs, semiconductors, telecommunications, IT services, and digital media. In addition to Microsoft in operating system and office software, China Mobile and China Telecomm are identified as monopolistic in telecommunications, Tencent in instant messaging, Baidu in search engine, Tao Bao in C2C e-commerce, CCTV and Focus Media in media, Intel in semiconductors, IBM in IT services, and Sony in digital camera.
If this report represents some sort of indication, both Chinese companies and MNCs will be scrutinized for the “likelihood of elimination or restriction of competition in the relevant market,” according to the new law.