I make no apology for returning to competition law in China following my July column on the subject. The new law has finally been enacted and will come into force next year; it is going to prove hugely important for business; and, disappointingly, an absolutely key issue remains unresolved.
By way of background, the law seeks to control four main types of activity: anticompetitive agreements by businesses, abuses of dominant market power, anticompetitive mergers and acquisitions, and anticompetitive administrative action by provincial governments.
So far, so familiar. There are clear analogies to the EU and US laws which have been credited for making important economic contributions.
Will the implementation of the new PRC law then simply be a matter of economic theory and its application? Naturally, it won’t be that simple – though, to be fair, the separation of politics from antitrust is imperfect in most countries.
How, then, could special interests overcome public interest in the application of China’s new law?
Formally there is plenty of scope for this. In addition to the high-profile clause which permits the blocking of foreign acquisitions of Chinese businesses on national security grounds, there are some more systematic features of significance such as the broad scope for exceptions to be made from all aspects of the law by the authorities.
A question of control
The critical question, therefore, becomes: Who will administer this law and what sort of process and transparency standards will apply?
Starting with M&A, it seems likely that power will be secured by the Ministry of Commerce (Mofcom), which has for some time been operating an “interim” scheme of control over foreign acquisitions of Chinese business.
A significant reallocation of this power seems unlikely. Most businesses seeking to conduct M&A in China will probably view this as a relatively benign outcome, at least in the short term, since Mofcom has not in practice sought to block many of the acquisitions submitted for its approval.
There is much more speculation over who will win the fight over administering the provisions on restrictive agreements and abuse of dominance. The contenders are the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC), each of which has existing functions under the current piecemeal competition-related laws.
This turf war reportedly continues notwithstanding the passage of the law and the outcome is unlikely to be clear until some time next year.
Many think it will result in an incoherent compromise, perhaps with the jurisdiction over anticompetitive agreements falling to the relatively pro-liberalization NDRC and abuse of dominance being left to the relatively conservative SAIC. A better outcome – for China and foreign interests alike – would be an independent authority, not under the control of any existing agency, with the various power centers represented only at policy committee level.
Window of opportunity
The problem with turf wars of this sort is that the true public interest tends to go missing in action. Over the next few months, there is a golden opportunity to knock heads together and introduce at least the foundations for a good system by creating an independent administration. From there, China can develop the standards of economic sophistication, due process and transparency which will ultimately determine whether this law is a success or just another battle-ground for inter-ministry warfare.
In short, this is a case, if ever there was one, for disorderly competition to be restrained by the central power.
Realistically, of course, we shouldn’t expect an ideal institution, let alone an effective appeal mechanism, to be created in 2008. But if at least the core of an independent authority can be created – with power over, say, restrictive agreements and abuse of dominance – its jurisdiction could well extend later to other areas such as M&A and administrative abuses.
This is essentially what happened in the securities sector, with the China Securities Regulatory Commission now enjoying much respect after emerging victorious from the mess of the 1990s.
It remains to be seen whether that success can be repeated in the even more important sphere of competition law.