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China Hits Foreign Firms With Monopoly Law - Analysis [Eurasia Review](Eurasia Review Via Acquire Media NewsEdge) By Michael Lelyvel China has mounted a major attack on foreign companies for alleged monopolistic practices, causing many to cut prices and raising suspicions that political forces may be at work. In recent weeks, at least 20 multinational firms have been confronted with official findings or pressure under China’s anti-monopoly law, which was hailed as the “constitution for the market economy” when it was enacted in 2008. Companies ranging from Microsoft to Mercedes-Benz have fallen prey to investigations, document seizures and searches of their offices in an unprecedented crackdown under the law. “We may be seeing a paradigm shift where the rules of the game are changing,” former U.S. Treasury Department official David Loevinger, now an analyst at TCW Group in Los Angeles, told Bloomberg News. “Until people figure out the new rules, it will create a much more uncertain business climate,” Loevinger said. Chinese officials have insisted that the wave of cases is not extraordinary, while foreign companies and consultants are still unsure what to make of it. “Looking back at the last six years after the Anti- Monopoly Law took effect, both domestic and foreign firms have been probed according to the law,” said Ministry of Commerce spokesman Shen Danyang, according to the official Xinhua news agency. “The Chinese government has always been dedicated to creating an equitable business environment for companies and safeguarding the order of market competition,” Shen said on Aug. 9. Coordinated campaign Many of the latest headlines have been generated by antitrust investigations launched last year, making the flurry of recent announcements difficult to interpret. But there have also been suggestions of a coordinated government campaign aimed at foreign interests. On July 24, for example, the National Development and Reform Commission (NDRC) confirmed the monopoly status of Qualcomm Inc., alleging that the California-based mobile chipmaker charged excessive licensing fees, state media reported. Five days later, the State Administration for Industry and Commerce (SAIC) announced an anti-monopoly probe of U.S. software giant Microsoft after searching company offices in Beijing, Shanghai, Guangzhou, and Chengdu the day before. In a statement, SAIC said it was investigating “problems with compatibility, bundling and document authentication” at Microsoft, Reuters reported. Also in July, a series of foreign car companies including Mercedes-Benz, Audi, and Jaguar Land Rover agreed to cut prices for cars, parts, or service under pressure from NDRC probes. On Aug. 6, NDRC spokesman Li Pumin said U.S. automaker Chrysler, owned by Fiat of Italy, has been under investigation since 2011, Xinhua reported. On Aug. 12, General Motors said its Shanghai GM joint venture has been contacted by anti-monopoly regulators and has “actively responded” since 2012, according to the Associated Press. On Monday, state media said Mercedes-Benz had been found guilty of manipulating prices in after-sales service, citing a Xinhua report Sunday. The report cited an NDRC price bureau official in coastal Jiangsu province. Mercedes parent Daimler of Germany said it was cooperating with authorities, according to a Reuters report. The commission also said it would fine 12 Japanese auto parts and bearing manufacturers for alleged antitrust violations, the official English-language China Daily reported. High-level push The NDRC, China’s top economic planning authority, is one of three agencies with anti-monopoly jurisdiction, including SAIC and the Ministry of Commerce. The simultaneous actions by separate authorities may signal a high-level push. At least one state media report has suggested that the sudden avalanche of cases may be only a start. On Aug. 13, China Daily quoted an unnamed NDRC official as saying that “more than 1,000? Chinese and foreign automakers, suppliers, and dealers are under investigation. While the official stressed that domestic companies are also subject to scrutiny, foreign investors see the crackdown as weighted against them. “There are many foreign companies that believe they are being targeted by the Chinese government,” said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai. “The laws are not being applied equally to foreign and domestic firms,”said Jarrett in comments cited by The Australian Financial Review. Critics see the anti-monopoly drive as an attempt to reduce prices and profits among foreign producers while increasing domestic companies’ market share. In a statement on Aug. 8, the China Association of Automobile Manufacturers (CAAM) backed the investigations. “These moves were taken in accordance with the Anti-Monopoly Law and are expected to clean up the auto market and safeguard the legal interests of Chinese consumers,” the group said. Political motives Foreign investor interests have warned of repercussions. David Hoffman, vice president and managing director of The Conference Board China Center for Economics and Business, raised the question of political motives in an interview with The New York Times. “It would be a very, very serious concern for foreign investors in China if this proves to be an effort … to deliberately curtail the profitability and success of foreign brands in China ‘just because’ they are resented, as a matter of principle—or worse, ideology—by some in government,” Hoffman said. On Monday, the Ministry of Commerce spokesman again denied that regulators were “just targeting foreign-funded companies.” Some of the uncertainties stem from perceived differences between alleged violations of China’s law and other accepted definitions of monopoly status. Under the law, which was developed from drafts as far back as 1994, a monopoly exists if a single operator has a market share of 50 percent or more, or if two operators collude to hold two-thirds, or three hold three-quarters, China Daily reported in 2006. Violators of the law can face fines ranging from 1 percent to 10 percent of their annual China revenues. ‘Monopoly’ questioned In a blog posting for the American Enterprise Institute in Washington, resident scholar and Asia economist Derek Scissors argued that the sheer number of targeted automakers contradicts the monopoly allegations. “If you took an [economics] class or two in college, it might seem odd to accuse 15 companies in the same industry of being monopolies simultaneously,” Scissors wrote. Despite the apparent clash of definitions, one major NDRC complaint is that foreign automakers have charged high prices for proprietary spare parts. In response, some like Germany’s BMW have agreed to cut parts prices and widen distribution, Bloomberg News reported. Last week, authorities in central Hubei province announced fines totaling 1.6 million yuan (U.S. $260,000) against four BMW dealers for alleged deceptive pricing practices, state media said. Last week, China’s 21st Century Business Herald said the Audi nameplate of Germany’s Volkswagen AG would face fines of 250 million yuan (U.S. $40.6 million) for anti-monopoly violations. A key complaint is that foreign car prices are higher in China than in other markets. One reason is that China imposes separate taxes on imports, sales, and engine size at steep rates, The New York Times said in a report. Still, the sticker prices are likely to create pressure on foreign manufacturers for discounts. Other motives A broader issue is whether China’s regulators are using the law fairly to promote competition, prevent monopoly practices and protect consumers, or whether other motives are involved. While the government is pressuring foreign manufacturers, it continues to favor domestic monopolies in the oil industry and other sectors, in addition to promoting consolidation among producers of high-tech metals known as rare earths, Scissors said. A major question is whether the crackdown on foreign interests is a prelude to similar pressure on state-owned enterprises (SOEs) as part of a drive for industrial restructuring. China’s leaders may see the political necessity of targeting foreign businesses first to make the case that domestic manufacturers will be able to compete if SOEs are opened to restructuring and reforms. The government has taken tentative steps toward reforms in the energy sector. In February, the National Energy Administration (NEA) ordered China National Petroleum Corp. (CNPC) to open its pipeline network to other producers and suppliers. The state-owned monopoly set “basic principles” for allowing outside users to access its pipeline when spare capacity is available, China Securities Journal reported on Aug. 7. The move may raise expectations that more significant steps toward market competition are in the works. “I don’t think it’s about enforcing anti-monopoly laws, because if they did that, they would just split up CNPC,”Scissors said in an interview. Political maneuvering But there may be larger forces at play in the crackdown as the government makes the case that its anti-corruption campaign will not leave domestic companies vulnerable to foreign competitors, since they will remain under pressure. “It’s an attempt to buy political maneuvering room,” said Scissors. If the interpretation is right, more moves against foreign interests can be expected, but these will be accompanied by more anti-corruption cases and orders for industrial reforms. “While you’re engaged in the anti-corruption campaign that is essentially aimed at state-owned enterprises, you have to be bashing foreigners at the same time,” Scissors said. 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