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Foreign companies busted in monopoly crackdown

Tech and car companies feel the heat in China's new-found anti-trust fervor

08·15·2014

Foreign companies busted in monopoly crackdown

Tech and car companies feel the heat in China's new-found anti-trust fervor

08·15·2014

China’s Anti-Monopoly Committee of the State Council, the country’s “market regulator”, launched separate anti-monopoly probes into foreign business a few months ago, and it announced on Wednesday that it would punish a few companies for their practices. Just this Thursday, it announced the imposing of fines to the tune of 250 million yuan ($41 million) on German luxury car brand Audi, following an alleged violation of China’s Anti-Monopoly regulations, as reported by the South-China Morning Post.

Audi has already stated its sales arm – a joint venture with state-owned FAW Group – had violated part of the country’s anti-monopoly laws, and that it would accept the penalty. It is the first Western-based company in what we can imagine to be a long series of fines, part of a broader anti-monopoly campaign.

On Monday it was Daimler’s unit Mercedes-Benz turn, whose Shanghai offices were raided for 11 straight hours, entering the offices and questioning the staff, evading the security personnel’s attempt to bar their entrance, according to the International Business Times. The authorities have announced fines, but have not yet disclosed their amount.

Everyone will have heard about all the recent Microsoft struggles and arguments related to anti-monopoly compliance in China, as far as popular Microsoft Office sales packages are concerned.

Other technological giants probed by the Committee include Apple, U.S. chipmaker Qualcomm Inc., Italian Fiat’s unit Chrysler and German BMW as well as a few Japanese car makers.

Why are all these well-known Western companies being fined then?

The recent probes are part of China’s attempt to finally enforce the Anti-Monopoly Law of 2008, prohibiting many practices which had previously been common. Mayer Brown explains that the law focuses on the so-called “three pillars”: merger control, monopoly agreements, and dominant market position.

The law establishes that firms be forbidden to go on with acquisitions and purchases of other companies exceeding certain thresholds. For merging operations and investments “that could affect national security”, the law requires that the company receive clearance from the state before proceeding with their strategies.

It also prohibits agreements between competitors or among trading partners to fix the prices of goods. Given that German Audi, BMW AG and Mercedes-Benz have a roughly 70 percent premium car market share, it was very likely that they would show up on the anti-monopoly radar.

Furthermore, the Law prohibits:

“Acts that may constitute “abuse” of a market dominant position, including the sale of products at “unfairly high prices,” the act of selling below cost (where it cannot be otherwise justified), refusing to trade with partners, or imposing unreasonable trading conditions or “tie-ins” to sales.” (see full text by Mayer Brown)

Though Chinese authorities never revealed their targeting practices of their investigations, it is their dominant market position and pricing systems (especially for German car makers, Microsoft, Apple and Qualcomm) to be a growing concern:

“Experts say China is responding to greater awareness that the prices its people and companies pay for goods from foreign companies are often higher than those in other markets. A 16 GB iPhone 5C from Apple Inc.  costs Chinese consumers 4,488 yuan, or roughly $730, without mobile operator subsidies. The same phone, without operator subsidies, costs $549 in the U.S., 33% higher than in China. Apple says U.S. taxes can increase the price by as much as 10%.”

Something very similar applies to foreign car brands, reportedly more expensive in China than anywhere else.

Recent anti-monopoly raids are wreaking havoc in big name companies and boosting concerns abroad because the law had never been enforced and because raids seem to be targeting mainly foreign companies. Once fined, they can’t expect much recourse from the courts either, as they are thought to be aligned with the market regulation authority.

The European Union Chamber of Commerce in China expressed its concern over the investigations on Wednesday, hinting that China was using its six-year old law to target foreign firms unfairly.

Chinese authorities have decidedly rejected those allegations, pointing out that investigations have been targeting foreign firms as well as Chinese ones, including China Unicom and China Telecom Corp.  “Looking back at the past six years after the Anti-Monopoly Law took effect, both domestic and foreign firms have been probed according to the law,” Ministry spokesman Shen Danyang said in an official statement.

This stance coincides with the Chinese official position on the issue, as testified in a note by Xinhua:

“China is a late starter in terms of anti-monopoly. It launched the law as it is the inexorable requirements for a socialist market economy. But China is rapidly reaching the world day by day and a fairer, more competitive and orderly market must be formed eventually, they believe.

This is something all market players, including domestic and foreign, will benefit from in the long run.”

Master Image courtesy of Flickr User: Brunch Girl. Used and edited under a Creative Commons licence.