China’s Antitrust Crackdown

By | Updated June 23, 2016 12:31 AM UTC

China passed its first antitrust law in 2007, and to some foreign business interests it seemed like a promising development. The hope was that it might bring order out of legal chaos. A report from the prominent U.S. corporate law firm Jones Day called it “a tremendous accomplishment” likely to “ensure healthy competition in the Chinese market.” That was then. Now? China is enforcing the law aggressively and foreign companies are complaining that the government is deploying it to protect Chinese ones. China has used the law to press Japanese, European and U.S. carmakers to cut prices, and to justify raids on offices of Microsoft, Qualcomm and Daimler. China says it’s doing what antitrust enforcement is supposed to do: creating a level playing field for domestic and foreign companies. It says it deserves credit for progress toward the rule of law.

The Situation

China fined Qualcomm $975 million in 2015, a record antitrust penalty in the country, because it said the company’s license fees were too high and it had used its dominant position to force customers into accepting its conditions. That dwarfed the previous record $200 million fine levied in 2014 on a dozen Japanese auto-parts makers found guilty of fixing prices in China and elsewhere. Of those, Sumitomo Electric was fined a then record $47 million and Yazaki had to pay $39 million. Mead Johnson Nutrition was sanctioned $33 million in 2014 after baby formula makers were found guilty of price fixing. The first penalties imposed exclusively on foreign companies came in 2013 when six liquid-crystal display makers from South Korea and Taiwan were fined $56 million. At least eight foreign automakers in 2014 announced price cuts following raids and investigations, including Land Rover, Mercedes-Benz and BMW. Local antitrust regulators said that they fined automakers including Chrysler and Audi. Before the Qualcomm case, fines imposed by Chinese authorities were much smaller than those levied for similar infractions by the EU and U.S. For example, Yazaki was fined $470 million in the U.S. in 2012 and 125 million euro in 2013 by the EU. 

The Background

China’s authorities took two decades to draft the anti-monopoly law before enacting it in 2008. They said it was needed to update the country’s “socialist market economy” and to safeguard consumers. The law allows the government to impose fines of as much as 10 percent of a company’s annual revenue, about the same as in the European Union. Unlike the U.S., China has no criminal antitrust penalties. Investigations of big international companies, including the auto-parts makers, started at least three years ago. The antitrust probes coincide with efforts by President Xi Jinping to tighten his grip on power and show ordinary Chinese that he’s serious about addressing their concerns ranging from corruption among government officials to overpriced auto parts. In March, 2016, China published draft antitrust guideline for the auto sector. 

The Argument

Foreign governments and businesses have long urged China to enact clear laws and procedures for enforcing them, and that’s what China says it wants to do. Foreign investors say the antitrust crackdown is being enforced unevenly and confusingly by three government agencies, and that the business environment for overseas companies is worsening as a result. The European Union Chamber of Commerce, which has about 1,800 members in China, said in a 2014 statement that Chinese investigators were pressuring foreign companies into accepting punishments without giving them a fair chance to defend themselves. China says that its antitrust activities do not amount to a coordinated attack and that it remains an attractive foreign investment destination. It also cited antitrust investigations of China Telecom and China Unicom and fines for distillers Kweichow Moutai and Wuliangye Yibin as examples of how the government has subjected local companies to equal scrutiny.

The Reference Shelf

  • The Ministry of Commerce posts an English translation of China’s anti-monopoly law.
  • Google Books has The Evolution of China’s Anti-Monopoly Law, by Wang Xiaoye, a member of the State Council’s anti-monopoly committee.
  • The journal Global Competition Review has a detailed look at China’s 2013 crackdown on “cartels.”
  • A U.S.-China Business Council report says there are “reasons for concern” about China’s antitrust enforcement.

First published Oct. 7, 2014

To contact the writer of this QuickTake:
Jie Ma in Tokyo at jma124@bloomberg.net

To contact the editor responsible for this QuickTake:
Grant Clark at gclark@bloomberg.net