Foreign Investors Fear China Law to Curb Monopolies Go back »

2007-08-31 | All chapters

Foreign Investors Fear China Law to Curb Monopolies
Jamil Anderlini, Financial Times, 31 August 2007

China passed the country's first anti-monopoly law yesterday, nearly 14 years after it was first proposed, in a move ostensibly aimed at encouraging fair competition but which many foreign investors fear will lock them out of the world's fastest-growing market.

The new law allows the government to conduct "national security reviews" of foreign acquisitions of domestic enterprises, something it already has the power to do under regulations issued last year by the Ministry of Commerce.

"It is not clear how such a national security review will be applied, especially given that 'public interest' is not defined in the law," the European Chamber of Commerce in China said in a statement yesterday. "This concern is underlined by the law's emphasis on the safeguarding of certain state-dominated industry sectors."

But the new legislation also covers "administrative monopolies" for the first time - a significant development for a country where large swathes of the economy, particularly backbone industries such as energy, telecommunications, media and resources, are dominated by state-owned monopolies.

"The most damaging monopolistic behaviour in China comes from government abuse of administrative power in the economy," said Edward Epstein, managing partner of the Troutman Sanders law firm in Shanghai. "This fact was recognised a long time ago in China but there just wasn't the political will in the 1980s and 1990s to deal with it and that's why it's taken so long for the law to be passed."

The country has numerous other laws and regulations to protect most state-owned monopolies, but the anti-monopoly law "creates the legal basis for eventually doing away with government monopolies", according to Lester Ross, managing partner for the Wilmer Hale law firm in Beijing.

China currently has a patchwork of consumer protection and unfair competition laws, most of which were enacted as long ago as 1993 and do not properly deal with the issue of commercial monopolies. The new law will go into effect on August 1 2008.

Both the EU chamber and the American Chamber of Commerce in China said yesterday they were concerned about the government's definition of abuses of intellectual property rights to create monopolies as some members believe this provision could be used as justification for infringement of intellectual property rights - an endemic problem in China.

As in the case of IPR, the main concern for foreign investors and Chinese companies alike is how the law will be implemented. Chinese legislation is usually vaguely worded and intended to provide a framework that is fleshed out by administrative regulations issued by government departments later on.

"I don't think China has nearly the required capacity in terms of trained personnel to implement this statute at the moment," Mr Ross said.

Some foreign investors do not fear lack of expertise so much as the government using the law as grounds for protectionism. "The anti-monopoly law will lend support to the policy agenda of protecting China's economic and national security and could be used to block unpopular foreign investments," Mr Epstein said.

In keeping with Beijing's commitment to improving the livelihood of more than 800m rural citizens, the new law does not cover the agricultural sector, allowing farmers to form co-operatives that can market their products for them.

Chinese lawmakers also discussed laws on prevention and control of water pollution, labour disputes, recycling, urban real estate administration and a law that for the first time will allow scientists to report experimental failures without blotting their records in funding applications.

Click here to download this article on Financial Times.