China News专访：（黄勇）Low Efficiency is the Biggest Insecurity:

The Anti-monopoly Law needs to be called upon to uphold market competition

March 2014 Issue | by Li Jia

When competition was introduced into China’s economy in the 1980s, State-owned enterprises found themselves in a tough game they had no idea how to play. Many were eliminated. But today, nearly all of China’s basic market resources and opportunities are in the hands of those who survived and thrived. They are feared, but not admired – and for the sake of the market, they must be changed.

Can the Anti-monopoly Law, supposedly the magic wand for upholding market competition, be wielded to any effect?

Professor Huang Yong with the University of International Business and Economics (UIBE) is Executive Vice Chair of the Expert Advisory Board of the State Council Anti-monopoly Commission, and participated in drafting the legislation.

NewsChina: SOEs are rivals. For example, staff at State-owned telecom operators have been cutting each other’s optical cables, and have even ended up in fistfights. There are often several different banks on a city street. Does monopoly hinder competition?

Huang Yong: We need to look at the market where the SOEs operate. There are two standards for determining whether or not it is a real market where fair competition is possible.

Firstly, market access. Is it subject to policy restrictions with little consideration of competition or law-based equal qualifications to all? In the banking sector, for example, privately funded banks are not allowed. Foreign banks face restrictions on shareholding in joint ventures and certain types of business. There are a lot of banks competing with each other, but none of them would go bankrupt if they failed, as happens every day in a real market.

Second, price control. Caps, ceilings or floating bands are imposed on a series of prices, including oil, gas, on-grid power, some bank services, as well as commissions for securities companies, according to the Price Law and other regulations, not supply and demand. This guarantees monopolies’ profits, so they rely on it, in many cases at the cost of consumer welfare. A bank can enjoy a high interest spread without worrying that its competitors might offer better terms for clients.

Therefore, the number of competitors does not count. Real competition only happens when everyone, no matter whether they’re public, private or foreign, enters and exits a market in line with the same conditions set by the law, is regulated equally by relevant laws – such as the securities, energy and banking laws – and competes with market-oriented prices. By these standards, there is no real market in those restricted sectors. The result is that we are charged unreasonably for many products and services necessary for our lives and businesses: water, power, oil, transportation, phone calls, and so on.

By the same standards, some SOEs are on an open market – construction materials, LCD panels and spirits, for example, and they do have significant competition pressure. However, they have privileged access to key market resources, like land and bank loans, giving them an unfair advantage over their private competitors.

NC: Those controls on access and prices are not challenged by China’s Anti-monopoly Law (AML). What can the law do with State-backed monopolies?

HY: Antitrust law is regarded as the “economic constitution” in a developed market economy. But this can only be possible when competition policy, of which the antitrust law is the most important tool, stands as a top priority of national strategy. This is not the case in China. Industrial policy takes priority and there are access and price controls based on other laws and regulations. Given this, it is true that the AML has a much more limited role here, but downplaying its role could do even more harm.

The law is neither meant nor expressed in a way that grants immunity to any category of sector or enterprise, regardless of its ownership, size or business type. The only immunity is for some conduct in agriculture. Indeed, all three behaviors targeted by the AML are clearly applicable to SOEs, either when they play within their enclosure or outside of it.

Firstly, where there are price controls, in oil and power, for example, it is a breach of the law for these monopolies to impose higher prices on consumers through conspiracy, a typical monopolistic agreement reached between competitors. SOEs in open markets, particularly the giants in any given sector, should pay special attention not to propose any price manipulation agreements through guilds with their competitors or with their upstream and downstream partners.

Secondly, it is not rare for SOEs in restricted sectors to abuse their power of market dominance, such as through price discrimination, unreasonable conditions on transactions or bundled selling.

Thirdly, some SOEs have failed to file their mergers and acquisitions deals for monopolistic reviews when the deals are big enough to require them to do so. They thought, incorrectly, that the law did not apply to them. The idea is further consolidated particularly when the deals are brokered by the government.

NC: How have SOEs responded to the law?

HY: There has been some positive change. The UIBE China Institute of Competition Policy invited SOEs for international seminars during the legislation process. None of them turned up, but a few came after the law was promulgated. Most have now realized that the law does apply to them. Some have installed internal procedures and departments for legal compliance. Even some giants not under investigation have launched internal legal training programs.

NC: What has forced these changes?

HY: SOE reforms to promote competition have been going on at the initiative of the central government over the decades. There used to be only one telecom company, and it has split and been restructured several times since the 1990s. Now we have three. The same thing happened with oil. However, market demand, public opinion and the legal pressure have contributed more.

The strongest force is law enforcement. China Telecom and China Unicom have been under investigation since 2011 for price discrimination against broadband wholesalers who also compete with them. Moutai and Wuliangye, two State-owned liquor manufacturers, have been fined heavily for price manipulation. SOEs have been ordered to file their M&A deals according to standards set by the law. These actions have not only attracted public attention, but prompted decision makers to rethink the rationale behind the monopoly system. There are already discussions in the media questioning why 12306.cn is the only online rail ticketing platform. Privately produced solar power is now permitted to be on the State grid.

Interestingly, the turf war among SOEs has also contributed. Local SOEs are not happy with the monopolies of central SOEs. Cable TV operators want to enter the market monopolized by telecoms giants. They have realized, to some extent, that the law is a better method of arbitration than fights between interest groups.

The State-backed monopolies are powerful enough to resist law enforcement. Though the two telecom giants have promised, under legal pressure, to bring down prices and improve the level of interconnectivity, the conclusion on whether they have breached the law and should be punished is yet to be made.

NC: Does the enforcement system in which the administrative and judicial procedures go side by side also weaken the AML?

HY: The dual track itself is not a big problem. It is also in force in the EU. In the past year the number of court cases rose faster than that of administrative ones. This is progress because judicial settlements should be final, and most verdicts, as far as I have observed, are well-grounded. However, the court steps in only when someone files a lawsuit. Administrative agencies act wherever necessary, and are more efficient and experienced in dealing with certain types of case. The Ministry of Commerce (MOFCOM) has reviewed more than 800 M&A deals. In addition, there are checks and balances between the two tracks.

The real problem in the system now lies in the insufficient independence and authority of the administrative enforcement institutions. Price manipulations, abuses of market dominance and M&A are subject to offices under three separate ministries, respectively the National Development and Reform Commission (NDRC), the State Administration of Industry and Commerce and MOFCOM. These offices are not even the most important within their own ministries. The competition department at the NDRC is outweighed by industrial ones, and MOFCOM focuses more on international trade and investment. The three must be integrated into one, and upgraded to the ministerial level.

Another problem, yet to be encountered in China but which has been seen in developed markets, is what happens if an administrative settlement is not accepted by the parties in question, or if it is different from a court judgement on the same case.

NC: Can the articles concerning administrative monopoly, which are rarely seen in antitrust laws in developed markets, effectively challenge the policies and rules on which SOE monopoly is founded?

HY: The law says that administrative agencies and other public affair organizations should not formulate policies restricting or excluding competition. However, antitrust enforcement agencies are only given the power to “advise” the higher authorities to reassess those policies. The absence of legal responsibilities has triggered wide criticism that it is toothless and thus meaningless.

I think this is a realistic, feasible option. You can’t just sit and wait till everything is ready. With this provision, investigations can be launched in the first place, which results in possible conclusions on law breaches, which in turn justifies advice to remove the policies in question. Governments in China are assessed by performance. If a government agency often has a record of law-breaking, its leaders certainly face a high risk for their political careers.

In 2011, the government in Heyuan Iity, Guangdong Province appointed one GPS company to collect traffic data. Other operators complained. The provincial government ordered the local government to stop the practice on the basis of the investigation and advice from the industry and commerce department.

NC: Has technological progress also boosted deregulation?

HY: Yes, and this is also something special in China. Emerging sectors, typically the Internet, grow quickly not only due to technological progress, but market competition resulting from deregulation. Our Internet companies are internationally competitive. There is no SOE leader, and SOEs have failed when they have tried to enter, such as the search engine project of [State-owned newspaper] the People’s Daily. The private champions have even encroached on the domain of SOEs. Users of [messaging app] WeChat far outnumber those of a similar service operated by China Mobile. Alipay has challenged the dominance of China UnionPay. This has shown how their long history of protection has made SOEs so vulnerable to real competition.

However, the power of technological progress on deregulation has to be endorsed by the State. There is no technical barrier for the integration of telecoms, Internet and TV services. No progress has been made in more than ten years simply because of the resistance of the operators and ministries behind these services. Chinese consumers have to own separate cell phones for numbers run by different operators, and install several lines to access different services.

The knee-jerk reaction of SOEs towards external competition is to resort to State power, for example lobbying for fees to be imposed on WeChat or including taxi apps into a government developed system. Will State grids or State banks and bank card organizations abuse their dominance by refusing private generators or dealers, or imposing discriminative conditions? If they do, will the AML be activated to stop them? Those questions are crucial for China’s reform. The potential of the law is yet to be further exploited, even under the existing situation.

NC: Recently some telecom and health care services have been opened to private operators. Does this mean that the AML will govern more areas?

HY: Definitely. There is no need for any such law in a planned economy. Its role grows with the market. If SOEs are less protected by price and access controls, they will have to try anything possible for higher profits. Then regulators should make sure the new freedom and pressure would not result in conspiracy among competitors, or voluntary or compulsory value chain coordination to manipulate prices. I believe more public utility services and infrastructure should be open to private investment, and subject to scrutiny from both the AML and special sectorial rules.

This is why China’s AML has another role to play: boosting market openness. Firstly, short-term, biased industrial policies must be cut to make way for competition policies. In cases where an industrial policy is needed to give fiscal support to certain enterprises or sectors, its effect on market competition must be considered. This means both budget and market reviews when such a policy is proposed, drafted and implemented. The AML states clearly that the State Council Anti-monopoly Commission (SCAC) has the responsibility of assessing market competition. So far no such report has been made, five years after the SCAC was established. Solar panel enterprises would not have been motivated more by fiscal support than by market prospect to make investments if fair competition had been factored in when designing the policy. Government protection or support in the name of market order or national security in most restricted sectors only leads to low efficiency, which is the biggest insecurity.

NC: Some Chinese solar panel companies have even faced antitrust lawsuits in the US. Why was that?

HY: This is an issue that Chinese enterprises can no longer afford to ignore as China expands its foreign trade and investment globally. Several Chinese vitamin C producers were sued in antitrust cases in the US. There are many antitrust reviews on M&A deals involving Chinese companies on the overseas market. Chinese SOEs must bear in mind that they do not have any favorable treatment under foreign antitrust laws. Worse still, host countries, out of concerns for national security and market competition, normally put foreign SOEs under stricter scrutiny than domestic or private entities.

As most countries are stepping up their antitrust law enforcement, the cost of breaching it is huge. In the US, antitrust proceedings can lead to corporate executives being put under criminal charges. Chinese companies, including SOEs, are increasingly using M&A to expand their overseas presence. Filing for legally-required antitrust reviews is important. Serious effort towards antitrust law compliance in host countries is the first thing for Chinese SOEs going abroad.

附：原文报道链接

http://www.newschinamag.com/magazine/huang-yong-low-efficiency-is-the-biggest-insecurity