China's Enforcement Of Anti-Trust Rules Alarm Foreign Firms

When almost 100 government antitrust investigators simultaneously marched into four of Microsoft’s offices in China late last month, they were not looking for tea and gossip.

In what Microsoft characterized internally as “surprise visits,” agents from China’s State Administration for Industry and Commerce interrogated a vice president and other senior managers, copied contracts and financial records, and downloaded large amounts of data, including e-mails and other internal communications.

The swoop stood out for its scale, but it was just one of dozens of similar actions across China recently that have set off alarm in boardrooms across the globe. Chinese regulators appear to be energetically expanding enforcement of the anti-monopoly law, and foreign companies fear they could become easy targets for officials from an array of competing agencies and local governments aiming to impress President Xi Jinping, the Communist Party leader who has promoted visions of patriotic resurgence and technological preeminence.

The regulators’ actions, said Scott Kennedy, director of the Research Center for Chinese Politics & Business at Indiana University, embodies the party leadership’s efforts to overhaul the economy without abandoning control of the levers of power.

“China’s not moving toward a free market, but it’s moving toward a wider palette of regulatory tools,” Kennedy said. “These aren’t meant to create a level playing field; they obviously want the field to be slanted, but they want to use what I’d guess we call more sophisticated tools.”

Foreign companies worry the investigations could represent the rise of a newer, subtler form of protectionism, cloaked in impartiality but intended primarily to promote Chinese firms, especially the big, powerful state-owned companies. The government contends it is using the anti-monopoly law, established in 2008, to protect the interests of consumers against price gouging and other abuses.

“If China is going to be the third leg in the global antitrust regime, along with the US and the EU, and that’s clearly coming, then the key question is, What sort of approach is China going to take?” said John Frisbie, president of the US-China Business Council in Washington. “Is it going to be more the socialist state-run model, or is it going to be more of a market- and consumer-oriented model, or something in between?”

Not everything in China is stacked against multinationals, some of which may well have engaged in questionable practices and often have their own political allies and business partners. Nor is China the only country where Microsoft and other companies have faced consumer ire and regulatory scrutiny. But multinationals appear to be facing new and substantial challenges in China.

“China has a very large bureaucracy, but each agency has its incentives and missions, so when they enforce the law, they try to maximize their own interests,” said Angela Zhang, a lecturer in law at King’s College London who studies Chinese anti-monopoly law. “But I wouldn’t underestimate the power of some really large multinational companies, because these companies are also very deep-pocketed and have very good connections in China, and they can also do the lobbying.”

Analysts say foreign companies may be relatively more vulnerable because they generally lack the deep networks of political patronage that prevail in many sectors of China’s economy.
(NY Times)

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