Competition Welcomed But Not Monopoly

China finally has an anti-monopoly law of its own. The country's top legislature has passed legislation that prohibits certain monopolies.

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An anti-monopoly law is usually regarded as a nation's economic constitution. It serves to protect fair competition, prevent monopolistic behavior and maintain a regulated market place.

China's top legislator Wu Bangguo says the long-awaited law will benefit the country's economic development.

"Based on actual conditions in China, Chinese lawmakers have absorbed the experience of other international anti-monopoly laws to match the economic development in China."

The new law requires notification by all companies seeking mergers or acquisitions, if the actions meet the standard set by the State Council.

Local or overseas companies with more than 50 percent of China's market share for any product can be investigated to see if they are abusing their dominant positions

Hu Kangsheng, a senior official with the National People's Congress Standing Committee, says the law is not aimed at curbing the expansion of big enterprises.

"The anti-monopoly law should initiate from the practical economic conditions in China. It encourages the growth of domestic enterprises through legal merger and acquisition in developing economy of scale and improving the industrial centralization level and competitiveness."

And when a foreign company intends to merge or acquire a Chinese firm, it's also required to go through national security checks in addition to anti-monopoly checks.

"There have been increasing problems concerning foreign mergers and acquisitions in China lately, which has aroused great concerns from varied parties in society."

According to a report carried by Xinhua News Agency, the number of foreign mergers and acquisitions only accounted for 5 percent of all forms of foreign direct investments in China before 2004. The figure increased to 11 percent in 2004 and to almost 20 percent in 2005.

Foreign firms have begun to acquire major state-owned enterprises or companies with famous brands.

Such cases as US private equity firm Carlyle's bid for China's largest construction equipment maker, Xugong, have triggered concerns about national economic security. The deal is still under scrutiny from authorities.

"I don't think such rules will prevent foreign mergers and acquisitions in the country."

Dr. Yuan Dujuan is a law expert at Shanghai University.

In the United States, criticism from US Congress forced Chinese petroleum producer, CNOOC, to give up a more than 18 billion dollar takeover bid for the California-based oil company, Unocal, in 2005. US lawmakers said the deal could jeopardize its national security.

And after a Dubai state-owned company failed to purchase operations at six U.S. ports early last year, US Congress took up legislation to strengthen reviews of foreign investments.

Shang Ming is head of the regulations and decrees division of the Ministry of Commerce.

"National security checks are common practices conducted in many countries (when there are market entries and investment conducted by foreign companies)."

China's newly adopted anti-monopoly law also bans companies colluding to raise prices.

Huang Jianchu, chief of the national legislature's economic law section, explains the rules on price manipulation that involves trade associations.

"If a trade association initiates any joint price hikes in an industry, it will be fined no more than 500,000 yuan, or roughly 65,000 US dollars."

The stipulation is highlighted in light of the recent colluded price increases in certain industries.

The China chapter of the International Ramen Manufacturers Association and some instant noodle makers were found to have jointly conspired in raising prices amid price hikes for food and raw materials.

As the country doesn't have an antitrust law in place, China's top economic planner, the National Development and Reform Commission, recently issued an order requiring instant-noodle makers to take back the so-called 'illegal' price hikes.

"Those whose offences are serious may have their certificates revoked under the new law."

Late last year, the State Council released a list of strategic sectors in which the State would retain control. It includes military-related manufacturing, power production, telecommunication, aviation, shipping and manufacturing of grids and petroleum.

Though these sectors still hold monopolistic positions, they are prohibited by the new law from using such status to curb competition, fix prices, enforce package sales, and refuse or enforce trade.

The law, which began to be drafted 13 years ago, will come into effect next August.