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Anti-trust move is market-based

2014-08-12 13:18 chinadaily.com.cn Web Editor: Qin Dexing

When Rio Tinto employees were arrested for the theft of trade secrets and espionage in 2009 they accused China of using them as a bargaining chip in iron ore price negotiations.

When GlaxoSmithKline (GSK) was investigated for bribing government and hospital staff to increase drug sales in 2013, it accused China of attempting to squeeze foreign companies out of its vast consumer market.

When Microsoft and other foreign companies were probed for alleged market monopoly they accused China of discriminating against foreign enterprises.

Western media commentators seem ready to accuse China of foul play whenever foreign enterprises are concerned.

The unspoken stance is no matter what they may have done in China, western companies should be exempt from investigation and punishment; if not, it would be an unequivocal sign of China's bullying of foreign players.

To have a better understanding of such a psychology of self-importance, let's look at what has happened on western soil.

In 2012, GSK reached a settlement with the US Department of Justice and agreed to pay $3 billion for promoting its drugs for unapproved uses, irregular promotion and paying kickbacks as well as price manipulation in healthcare programs.

Few have accused the US federal government of abusing its regulatory power.

Microsoft is also a frequent target of western anti-trust investigation thanks to its long-dominant market position. It has been probed by both US and European regulators for its monopolistic activities and paid large sums to settle cases.

Few have accused the US of discriminating against the Internet giant or the European countries of weakening Microsoft's position and protecting local enterprises.

When it comes to China, the fault is all put on Chinese regulators.

Admittedly, foreign investors have played an important role in China's economic take-off and growing maturity in the past three decades. They have created jobs, added to local revenues and expanded China's economic output. However, given their large numbers, it is not surprising that some have been involved in misconduct, such as monopoly and bribery — just as they have done in overseas markets.

If China does not conduct proper investigations into alleged law-breaching activities by black sheep, it would be unfair for law-abiding firms — both Chinese and foreign — in China.

The core issue, therefore, is whether those companies investigated have done anything wrong. It is appropriate and legitimate for China to scrutinize if there are signs of foul play in the Chinese market.

Over-interpretation of China's market order-maintaining regulatory moves would be both unfounded and misleading.

Those who accuse China of discriminating against foreign companies should look at previous anti-trust cases, involving major Chinese companies, including China Telecom and liquor makers Wuliangye Yibin Group and Kweichow Moutai. The latter two were fined as much as 449 million yuan ($72 million) in total for price-fixing.

It seems the number of Chinese companies investigated in anti-trust moves is smaller than that of foreign companies. But regulation should only be based on facts, not mathematics. It would be ridiculous to claim that China is in favor of domestic players simply by comparing the number of companies under investigation.

Far more foreign companies are in a leading position in various domestic industries, such as auto-making, milk powder production, computer software and hardware, edible oil, cosmetics and high-end pharmaceuticals, to name but a few. It would not be surprising if some have taken advantage of their positions for illegal benefits.

The victim mentality reflected in the willful accusation of China's normal regulatory moves could have resulted from the changing business landscape in China in recent years.

In the 30 years following China's launch of its reform and opening-up drive in late 1970s, foreign companies have been widely welcomed as their investment can bring much-needed capital to cash-thirsty local governments. As a result, "introduction of foreign capital" has become a crucial factor in evaluation of the career performance of local officials and local governments competed fiercely with each other in releasing preferential policies, such as free or low-cost use of land and tax exemption, to woo foreign investors.

Only in recent years have authorities realized that such investor-wooing policies are not sustainable and have put domestic enterprises at a disadvantage.

In a landmark move, China unified its corporate income tax rate for foreign and domestic companies at 25 percent in 2007. Previously, the rate for both types was 33 percent, but in reality, local governments have offered various preferential tax treatments to foreign companies, giving them an edge when they compete with Chinese rivals.

The move is a crucial step for China to build an equality-based market for all, but by depriving foreign enterprises of their super-national treatment, it has inevitably aroused protests from those spoiled foreign players.

In the same vein, the current anti-trust move, which is also an indispensable step for China to build a real, mature market economy, is set to make the scrutinized foreign companies uneasy.

Instead of complaining like cry babies, they should rethink their way of operation in the maturing Chinese market.

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