One of the main objectives of the new Price Law is to curb price wars, in which domestic manufacturers of refrigerators, VCDs and colour televisions have repeatedly slashed prices in the last two years. The government is concerned that consumers could lose out in the long run, as competition might force some manufacturers out of the market and allow those remaining to dictate prices. In fact, a closer look at the 1998 Price Law reveals that it is largely a consolidation of legislative developments since the issue of the 1987 Price Administration Regulations.
Retracing price controls
The 1987 regulations allowed market forces to determine prices for the first time by setting up three tiers of prices: market-determined, government-guided and government-set. Under the Price Law, this system remains.
Market-determined prices currently apply to more than 95 percent of commodities and services available in China. These prices, however, remain closely monitored by the Chinese government. The Price Law gives the government leeway for emergency measures, from establishing a reserve system for key commodities to directly setting prices and other ?interference measures.?
Meanwhile, government-set prices are to be determined by relevant government departments at the national or local level. The law stipulates that producers of commodities and providers of services with government-guided prices must set prices within prescribed floating boundaries. Government-guided or set prices may apply to commodities that are crucial to the economy and people's lives, rare or scarce commodities, commodities and services under natural monopoly operations, public utilities and welfare services.
The Price Law stipulates that government-set and government-guided prices are to be published in national or provincial price catalogues available to the public. However, revised price catalogues have not yet been published. Until then, categories for government-set and government-guided prices established in three 1992 catalogues and other local and national regulations remain in force.
Curbing unfair practices
The Price Law is the first piece of Chinese legislation generally to address unfair pricing activities, including remedies for infringement. Of greatest importance, perhaps, is the provision which addresses manipulation of market prices by business operators. The law defines as unfair and bans a number of practices:
The Price Law is the first national regulation to address the issue of price collusion and prohibits fixing prices for products that are available at market prices and not subject to state guidance or setting. Local price bureaux can order violators to cease price fixing, confiscate illegal income, and issue warnings and fines. In serious cases, local price bureaux can suspend the violator's business temporarily or have its business licence revoked. Violators can only be held liable to pay damages to competitors or consumers by a civil court.
The Price Law, like the 1993 Anti-Unfair Competition Law and its implementing regulations, prohibits dumping. The 1993 law defines dumping as selling commodities ?at prices below cost with the aim of defeating competitors', but fails to define cost; the Price Law suggests that ?cost' refers to production and operation costs. The new law also permits certain commodities to be sold below cost, including perishable and overstocked goods and goods produced by a firm clearing its debts, changing product lines or closing down.
A victim of dumping can sue the violator for damages in a civil court and request administrative action against the firm. In practice, it may be difficult to prove the intent to defeat competitors. Dumping and price subsidies by foreign firms are not addressed in the Price Law, but in the 1997 PRC Anti-Dumping and Anti-Subsidy Regulations.
Spreading rumours of price hikes
China's economy, with its tightly controlled information, is much more exposed to the risk of rumours than other, more open economies. Thus, it is not surprising that the Price Law prohibits fabricating and spreading rumours of price hikes to force prices to rise ?too high.? The provision, however, leaves unclear the definition of ?too high,' and whether the rumour-monger should have known that the information he spread was wrong or whether he is liable even without fault.
Attracting business through deceptive pricing
Similar to laws in the US prohibiting ?bait-and-switch' tactics, the Price Law prohibits ?business operators from adopting false or misleading means of pricing in order to induce consumers or other business operators to do business with them.? However, proving that a business operator intentionally misled a customer may be difficult, as the operator can claim that the pricing information was a mistake.
Discriminating against business operations
The Price Law protects businesses that depend on supplies from trade monopolies from being squeezed out of the market by competitors which have a special relationship with a monopoly. It does this by prohibiting price discrimination between business operators `that are under the same trading conditions'. Thus, under the Price Law, businesses that enjoy a monopolistic position, such as utilities, may not restrict consumers to purchasing their commodities or those that are sold by their designated business partners, even though similar commodities by competitors meet the required technical standards.
Manipulating prices by incorrectly categorising commodities
When selling goods or services, businesses may not change the quality grades of items as a pre-text for raising or lowering prices.
In a provision that seems too vague to be meaningful, the Price Law forbids businesses from ?seeking exorbitant profits in violation of provisions of relevant laws and regulations.?
Other illegal pricing activities
The law contains a catch-all provision against ?other illegal pricing acts forbidden by laws and administrative regulations.? A possible interpretation of the provisions is that they could bring profiteering and pricing activities forbidden by other laws and regulations within the enforcement and penalty provisions of the Price Law, in addition to any enforcement and penalty provisions in other relevant legislation.
In addition to responding to price wars in consumer goods, the Price Law addresses consumer complaints regarding exorbitant prices for telephone installation, medical care and education. The law calls for public hearings before the relevant price bureaux, sets key prices of public utilities, public welfare services and products under natural monopolies.
Government price administrators are to consider comments from producers, wholesalers, retailers, consumers and other concerned parties when determining appropriate price levels. It remains to be seen whether public participation in price setting, described by a commentator in the Chinese media as `democracy in price setting', will in fact occur. Unfair pricing activities by the administration and the abuse of power by monopolies under government control how-ever, remain sensitive issues.
Freshfields is an international law firm. Most of its offices throughout Asia, Europe and North America include China specialists. For further details, contact Matthew Cosans through its Hong Kong office, tel: (852) 2846 3400 or its Beijing office, tel: (86) 10 6410 6338 or by e-mail email@example.com.