Towards an Anti-monopoly Law: China Vows to Upgrade its Competition Safeguards

By Tang Zhengyu, Partner, Chen Jiang and Hua Sha, Sidley Austin Brown & Wood, Shanghai

China holds an impressive track record in attracting foreign investment. For the past 11 years, China has been the leading developing country to draw foreign investment. At the end of 2003, China boasted 465,277 foreign-invested enterprises (FIEs), which represented US$943 billion of foreign investment. In the first quarter of 2004 alone, more than 10,000 FIEs were approved for establishment, a 19.57% increase compared to the previous year. While the persistently high level of foreign investment has fuelled China's economy over the past decade, it is more of a double-edged sword than a free lunch. Numerous multinationals that entered China in the late 1980s and early 1990s have since gained a commanding market presence through advanced technologies, advantageous scales of production and heavy capital investments. As is the case in many countries, some of this market power was gained at the expense of fair competition. A few years ago, for fear of discouraging the inflow of much-needed foreign capital, the Chinese government was hesitant to act to prevent the negative repercussions of foreign investment. However, with the slight cool-down of the Chinese economy in the past two years, and amid a growing concern for the viability of domestic industries, the Chinese government has taken the initiative to bring order to unruly markets and highly competitive business environments.

In May 2004, the State Administration of Industry and Commerce (SAIC) published a two-page report on the competition-inhibiting practices of multinationals. The SAIC report sets forth specific examples of monopoly trade practices and pinpoints the responsible multinationals. The SAIC report can be seen as a prelude to intensified scrutiny of the market position of multinationals in China. More importantly, the SAIC report has called for enhanced enforcement of existing laws and regulations to safeguard fair competition, as well as for the quick promulgation of the PRC Anti-monopoly Law(中华人民共和国反垄断法). (The Anti-monopoly Law has been in the drafting process since 1994.)