Trust issues(3)

Chinese officials have urged companies operating in China, domestic and foreign, to review their operations to see if their practices fully abide by the anti-monopoly legislation.

Huang Yong, Director of the Competition Law Research Center at the Beijing-based University of International Business and Economics, said most foreign companies have rich experience in addressing anti-trust issues, but they need to gain a better understanding of China's anti-trust laws.

"Closer communication with Chinese regulators should be highlighted," Huang said.

Bai Ming, a research fellow with the Chinese Academy of International Trade and Economic Cooperation, said intensified enforcement of the Anti-Monopoly Law will become a new norm in China. He said in the future, anti-trust probes will become more and more frequent in China and all businesses should get used to it.

"In the past, regulators only targeted businesses that have severely breached the law due to defective law enforcement and systems," Bai said. "However, after six years' accumulation of experience, China's law enforcement has greatly improved. The enforcement of anti-trust legislation is aimed at maintaining market order and sustaining a fair market environment, in order to better protect consumer rights."

The wave of anti-trust investigations has to date swept a wide range of sectors, such as LCD manufacturers, milk formula makers, pharmaceutical factories, liquor makers, auto makers, insurance companies and cement producers.

Wu Gangping, Chairman of Ernst & Young Great China, said the business environment in China has not deteriorated. "A large number of people flock to China to invest, which means they still have plenty of money to make."

According to Wu, although land and labor costs have risen in China, the country has a huge market, where manufactured products can be sold. He pointed to the fact that in recent years, a complete supply chain has been formed in China with locally based clients and suppliers. Also, China has a much more stable political environment than many other countries, Wu argued.

Wu said the recent year-on-year decline in FDI inflow into China has nothing to do with anti-trust investigations.

"FDI inflow in China has been at a very high level for a long time, ranking second in the world only to the United States. We can't expect FDI to be that high forever. Although there has been a decline, the total amount of investment is still relatively very high," Wu said.

"China's economic development used to rely on foreign investment and exports. Therefore local governments used to offer preferential policies to foreign businesses. China is not what it used to be in the 1980s. Therefore, domestic policies have changed accordingly," he said.

Fines for Anti-Trust Violations in China Since 2013:

September 2014: Three Chinese cement companies, North Cement Co. Ltd., Yatai Group and Tangshan Jidong Cement Co., were fined 114 million yuan ($18.5 million) in total for manipulating cement prices and reaching price-fixing agreements.

September 2014: FAW-Volkswagen Sales was fined 248.5 million yuan ($40.5 million) by the Hubei Bureau of Price Supervision, which is equivalent to 6 percent of the company's 2013 Audi sales in Hubei Province. Ten dealers of Audi, the company's luxury brand, were fined 29.96 million yuan ($4.9 million), equivalent to 1 to 2 percent of their 2013 sales in the local market.

September 2014: Chrysler Group China Sales Ltd. was fined 31.68 million yuan ($5.2 million) by the Shanghai Municipal Development and Reform Commission, equivalent to 3 percent of its sales in 2013. Three Chrysler dealers were fined 2.14 million yuan ($348,285) in total.

September 2014: A total of 23 Chinese insurance firms—including China Pacific Insurance, Ping An Insurance and China United Property Insurance—and the Zhejiang Insurance Industry Association were fined more than 110 million yuan ($17.8 million) for fixing new car insurance discounts and other anti-competitive practices.

August 2014: Twelve Japanese auto suppliers were fined altogether 1.24 billion yuan ($201.8 billion) for maintaining a price monopoly.

August 2013: Five Chinese jewelers, Laofengxiang, Laomiao, Yayi, Chenghuang and Tianbao Longfeng, were fined 10.1 million yuan ($1.6 million).

August 2013: Six domestic and foreign milk formula makers, including MeadJohnson and Chinese brand Biostime, were fined 669 million yuan ($108.9 million) in total, with the highest fine being given to domestic milk powder company Biostime Inc.

March 2013: Two Chinese premium liquor producers, Moutai and Wuliangye, were fined 449 million yuan ($73 million) for their conduct involving price fixing.

January 2013: Six Chinese and foreign television producers, including Samsung, LG, and Chimei, were fined 353 million yuan ($57.5 million) in total.