Price discrepancy likely reason for anti-monopoly probe

The National Development and Reform Commission said it has completed its investigation into the monopolistic practices of 12 Japanese firms that produce auto parts and bearings in China, and is ready to issue penalties against them.

The firms, which have yet to be named, are the latest to face charges under the government's anti-trust sweep, which has already pointed the finger at two foreign carmakers and recently extended its reach to the IT and telecom industries.

Li Pumin, secretary-general of the commission, said yesterday that the agency had found evidence of Audi and Chrysler pursuing monopoly practices, and is still investigating Mercedes-Benz, whose Shanghai office was visited without notice on Monday by officials from the Shanghai Development and Reform Commission and Jiangsu Province Price Bureau.

"The purpose is to maintain a sound competitive order in the auto market and protect consumer interest," Li told a press conference.

The investigations into Chrysler and Audi were handled by the Shanghai Development and Reform Commission and Hubei Province Price Bureau, respectively.

Before news of the probe was made public, all three carmakers announced price cuts for imported vehicles or spare parts, as "a proactive response."

On Tuesday, Chrysler announced a 20 percent price reduction for its Grand Cherokee SRT8 and Grand Cherokee 5.7L models.

Two days earlier, Mercedes slashed the prices of several of its replacement parts, including windshields and pumps for power steering by up to 29 percent.

Last month, Audi announced it was cutting the price of its spare parts by as much as 38 percent.

No Japanese carmakers have made any such announcements.

The discrepancy in prices of foreign cars in China and abroad is believed to be the main reason for the anti-trust investigation, which was launched two years ago but came to light only after it was reported in the media last summer.

The coverage led to a debate over whether the price gap was the result of tax policies or price manipulation.

Carmakers involved in monopoly might be accused of setting minimum prices at the consumer end, which is common practice in the industry, partly to bolster brand image, but also to eliminate rivalry between dealerships, said Ye Sheng from market research firm Ipsos.

Foreign car companies are capable of pursuing vertical monopolies in China and since 2005, a nationwide industry regulation has dictated that all imported cars and spare parts must be channeled through their manufacturers' own trading companies.

Shen Jinjun, secretary-general of the China Automobile Dealers Association, however, said that officials will likely use China's Anti-Monopoly Law, enacted in 2008, to override the regulation.

Under the Anti-Monopoly Law, violators can be fined between 1 and 10 percent of the their total sales revenue for the previous year.

"It's the implementation of the regulation that led imported carmakers into today's situation as it gives brand owners too much power," Zeng Zhilin, research director of LMC Automotive Asia Pacific, said.

The price gap is also partly the result of a special pricing strategy for the Chinese market, where consumers crave expensive luxuries, he said.