Kang Xiaoming, a paralegal with the Beijing office of a Hong Kong-based law firm, is doing her secondment at the Hong Kong headquarters. She talks to her husband every day, for it costs her only HK$0.25 a minute to make a call from Hong Kong to the Chinese mainland on her cellphone. On the contrary, her husband has to spend at least 1.5 yuan (HK$1=1.03 yuan) a minute to call her from Beijing on his cellphone served by China Mobile.

Hong Kong, covering an area of 1,103.72 square km and having a population of 6.9 million, has six competing mobile phone service providers, but on the vast mainland, with 9.6 million square km territory and 1.3 billion people, there are only two--China Mobile and China Unicom, both of which are state owned. In 2005, China Mobile’s earnings stood at 243.04 billion yuan, a year-on-year increase of 26.3 percent. Net profits were 53.55 billion yuan, expanding 28.3 percent. By contrast, China Unicom’s earnings in 2005 were 87.05 billion yuan, up 10.1 percent year on year.

This situation may soon change with the Anti-Monopoly Law that was deliberated by the Standing Committee of the National People’s Congress (NPC), China’s top legislature.

Although China has passed the Law Against Competition by Inappropriate Means, the Price Law, the Foreign Trade Law and some other statutes on trade malpractices, such as commercial bribery, abuse of market power by monopolies, anti-competition agreements and price-fixing, the effectiveness of the existing anti-monopoly legal framework is limited. An anti-monopoly law is needed to coordinate the scattered practices of different government agencies.

The draft law, comprising eight chapters of 56 articles, reportedly contains provisions on banning monopolistic agreements, abuse of dominance in the market and administrative monopolies as well as on investigation into and prosecution for monopolistic conducts. According to the current draft, an anti-monopoly commission will be established under the State Council, China’s cabinet, to coordinate the work of different departments.

Administrative monopolies

A legacy of the planned economy is that Chinese Government agencies have intervened in the economy with their administrative power, leading to administrative monopolies in some fields and industries, such as electricity, petroleum, natural gas, railways, telecommunications and civil aviation.

“The Chinese market economy and market competition are not yet mature and so the regulation of non-competition conducts is not mature. Like natural monopolies, administrative monopolies too pose the same damages to fair competition. For a long time, there have been few regulations to restrict administrative monopolies,’’ Meng Yanbei, a lecturer at the Law School of the Renmin University of China, told Beijing Review. Moreover, China has few international examples to learn from on restricting administrative monopolies, he added.

Breakup of administrative monopolies has emerged as the most contentious issue in the drafting of the anti-monopoly law. In the draft made by the Ministry of Commerce and the State Administration for Industry and Commerce in 2004, a whole chapter with five articles was devoted to the banning of administrative monopolies. In a September 2005 draft, the scope for dealing with administrative monopolies was reduced and in the draft submitted to the State Council in April 2006, the entire chapter was taken out. However, in the final draft deliberated by the NPC Standing Committee, the chapter on administrative monopolies was added in again.

An expert who participated in the drafting of the anti-monopoly law and wishes to remain anonymous attributes these changes to the complicated reasons behind the emergence of administrative monopolies in China and the strong opposition from some industry regulatory departments.

Although it is widely expected that the anti-monopoly law will help curb monopolies in industries such as telecommunications, railways, civil aviation and electricity, Cao Kangtai, Director of the Office of Legislative Affairs of the State Council, is not so optimistic. “Administrative monopolies are closely related to economic reform and administrative system reform. A law cannot solve all the problems,” he said.

Special treatment

According to the draft law, a special commission will be established under the State Council to organize and coordinate anti-monopoly work. “Establishment of the commission at least shows that the government attaches importance to the issue. After all, not every law is enforced by a special organ under the cabinet,” Meng explained.

However, the issue is still dogged by controversy. The draft only says that the anti-monopoly commission will comprise responsible officials from related government departments as well as some experts but does not detail its functions. Moreover, the draft stipulates that anti-monopoly work will be enforced by another institution under the State Council but says nothing about the legal relationship between the anti-monopoly commission and this executive body.

At present, more than 10 departments are involved in anti-monopoly work, according to Shi Jianzhong, a professor at the China University of Political Science and Law. For example, the State Administration for Industry and Commerce set up the Anti-monopoly Division under its Bureau of Fair Trade 10 years ago. From 1999 to 2006, the administration was entrusted with anti-monopoly work. In 2003, the National Development and Reform Commission, the top economic planner, passed the Provisional Regulations on Banning Monopolistic Pricing Practices and gave itself the power to deal with such issues. Since its establishment, the Ministry of Commerce is now playing a very important role in the drafting of the anti-monopoly law.

The draft fails to clarify some important issues, such as the relationship between these departments. “It may lead to both overlapping jurisdiction and blank space in the implementation of the law,” Professor Shi said.

Regulating mergers

Since 1992, China has absorbed more than $320 billion in foreign direct investment and at the same time, more and more foreign investors are buying Chinese companies, especially brand-name ones. Some Chinese enterprises are even sold to their foreign competitors after international buyout funds have earned their money. Former Director of the National Bureau of Statistics Li Deshui warned in March that the increasing foreign takeovers in some pillar industries have threatened the security of the Chinese economy.

In order to restrict corporate mergers that are likely to reduce the competitive vigor of particular markets, the draft anti-monopoly law stipulates that all mergers beyond a designated value, by both foreign and domestic-funded companies, shall report first to a responsible anti-monopoly department for approval.

In the latest draft, if the total sales volume of all parties of a merger in the global market surpasses 12 billion yuan and that in the Chinese market surpasses 800 million yuan in the previous year, the merger shall be reported to the responsible anti-monopoly department for approval. In a 2005 draft, the two standards were set at 5 billion yuan and 200 million yuan.

An official from the Office of Legislative Affairs of the State Council said the standards were fixed based on studies by a research panel from the Chinese Academy of Social Sciences, the experiences of the United States, Canada, Germany and Japan, statistics provided by the National Bureau of Statistics, as well as the results of the First National Economic Census. With such standards, most corporate mergers do not need to be reported so that the companies can improve their competitiveness. At the same time, the standards ensure that mergers that may lead to market dominance are subject to approval.

The anti-monopoly law, said Meng, will benefit consumers by bringing in more fair market competition. On the law’s impacts on businesses, he argued that all of them would be faced with the same opportunities and challenges, irrespective of the type of ownership. What the business community should do now is to participate more in the discussion of the so-called “constitution in the economic field.”

At a seminar sponsored by the Office of Legislative Affairs of the State Council in August 2005, representatives of 11 foreign-funded companies such as General Electric, Panasonic and GlaxoSmithKline, as well as the EU Chamber of Commerce in China and the American Chamber of Commerce in China, expressed concern that the standards for reporting mergers were too low.

Meng expressed optimism over the prospects of the anti-monopoly law. “China’s economic development needs such a law and I think it can be released soon after further revision. At least it will not be totally abandoned and a new one drafted,” he told Beijing Review.

Since the NPC Standing Committee is soliciting public feedback on the draft law, Meng and her colleagues are planning to put forward some suggestions to improve the details. For example, when determining whether or not a company is in a dominant position in the market, it should be given opportunities to present counter evidences.

According to China’s Legislation Law, in general, a draft law must be deliberated three times by the NPC Standing Committee before being voted on. Since the committee holds meetings every two months, it will take at least six months for a law to be passed. If a draft fails to be passed in two years, its deliberation is terminated.