More lawsuits, closer scrutiny

“Neither the scale of a merger nor its competitiveness should constitute serious grounds for imposing remedies,” the firm says. “There appears to be no competition law basis for imposing remedies which govern the future conduct of Inbev.”

Although this is only one case, it will not encourage those looking to do deals, especially those involving big domestic names – the so-called national champions.

BHP Billiton recently abandoned its takeover of Rio Tinto. Although the company cited market conditions including falling demand from China, it is reasonable to assume that competition law considerations also came into play. To comply with the European Commission's requirements, BHP would have had to sell significant parts of its business at bargain prices. Although the Chinese regulator had not officially started examining the case, most specialists agree that there was behind-the-scenes communication between Europe and China.

“I think that the Chinese authorities were coordinating their efforts with the European Commission,” says David Cox, head of competition in Asia for DLA Piper. “I suspect that they were probably waiting for the European result.”

Watching the BHP/Rio case unfold would have provided Mofcom with insights into the powers of a competition regulator. Blocking a headline merger or imposing substantial remedies is not an easy decision for any newly-empowered competition authority, but using other legal standards or having unofficial back up from another agency would help.

“This could have been the case here given the European Commission's latest position against the deal before BHP moved away from it,” Renard says.

It is likely that Mofcom is now more confident of the scope of its own future powers; the result will be closer scrutiny of future deals.

Litigation looms for foreign enterprises

The threat of lawsuits may be a bigger concern for foreign investors than the oversight of Mofcom.

“The biggest concern you have is uncertainty,” says Maurice Hoo, partner of Paul Hastings. “The more you have people who are not direct stakeholders – who you can't communicate easily with – getting involved, the more uncertainty [is introduced] into deals.”

Since August 1, when the Anti-monopoly Law came into force, several private actions have been brought against prominent domestic companies, with plaintiffs citing anti-competitive behaviour under the new Law.

Lawyer Li Changqing filed a complaint against search engine company Baidu in October, and plans to sue the company when he has gathered at least 100 co-plaintiffs. Another lawsuit has been accepted against the Beijing branch of China Netcom, and one has been filed against China Petroleum & Chemical Corp (Sinopec), a state-owned oil refining and distribution company. The litigant is a consumer who claims Sinopec abused its market dominance and sold fuel at an inflated price. Most observers say the case will not come to trial.

Gerry O'Brien, a senior associate of JSM in Hong Kong, says it is unlikely that the courts would want to make their own interpretation of the provisions of the Law until the enforcement agencies provide some guidance.

“The progress of lawsuits such as those brought against China Netcom and Sinopec may largely depend on the speed with which the anti-monopoly enforcement authorities are able to finalise the implementation rules,” he says.

Some of these rules may be close to finalisation. The National Development and Reform Commission (NDRC) is said to be well-advanced in the preparation of rules relating to pricing-related matters, which is likely to advance cases such as those against Sinopec. Once rules are in place, it is likely that many more cases will be seen for at least two reasons: businesses seeking to bring private actions will be encouraged by the fact that the well-trained intellectual property division of the People's Court will hear anti-monopoly civil cases – it is likely that they will continue to test the waters relating to the Law, says O'Brien; and some Chinese lawyers will be keen to bring high-profile claims to the courts, and build their reputations.

At some point in the year ahead, one of these suits may target an international company.

“There is a risk that firms may use the threat of Anti-monopoly Law litigation as a bargaining chip in commercial disputes and negotiations with high profile companies, including foreign-controlled multinationals,” says O'Brien.

This will have a significant impact on foreign investor confidence in 2009, with one of the biggest risks being reputational damage.

“This is just one more thing that a foreign operator in China has to take into account,” says Dane Chamorro, director of corporate investigations for Greater China and North Asia at Control Risks. “Someone could take up that cudgel and could get a lot of coverage in the media and blogosphere.”

(This article is part of the New directions for China in 2009 special feature)