In the news: Amazon moves into the FTZ, NDRC hands out record fine and SOE executives get pay cuts

Amazon comes to the Free Trade Zone

Amazon has decided to establish a base in Shanghai's Free Trade Zone. The aim is to take advantage of the looser trade regulations to sell a wider range of products and open their global platforms to Chinese consumers. The Seattle based company will also open a logistics warehouse to help the export of goods from Chinese companies, according to a separate statement from Shanghai Municipal Authorities. Amazon did not clarify when it is likely to begin operations, or how being based in the FTZ would affect its payment processes.

Sources:
Reuters
Wall Street Journal
Financial Times

After the hype, we finally see a big name moving into Shanghai's much hyped Free-Trade Zone. A number of banks including Citigroup and HSBC Holdings have set up branches, but, apart from Microsoft, other companies have been reluctant to follow because the rules lacked clarity. The advantages for the web retailer are clear and the move will give the company a slightly better chance of competing with the dominant player – Alibaba. Although the perception is that Amazon has been outmanoeuvred in China and an e-commerce market share of 2% does not look good, the company still delivers to around 3,000 cities and counties across the country. Can Amazon succeed where Google, eBay and Yahoo! Have all struggled? Getting behind a political project like the Free Trade Zone is a bold move that should improve its standing with local authorities and may give them a boost in the market as well.

More from CLP:
Analysis: The Shanghai Free Trade Zone – what did you expect?
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General Plan for the China (Shanghai) Pilot Free Trade Zone
Shanghai Municipality, Special Administrative Measures for Foreign Investment Access in the China (Shanghai) Pilot Free Trade Zone (Negative List)


NDRC hands record fine to Japanese companies

The National Development and Reform Commission, one of the three government bodies that enforce China's Anti-monopoly Law, has handed down total fines of Rmb1.24 billion (US$200 million) to a dozen Japanese car part makers. The largest individual fine went to Sumitomo Electric Industries for Rmb290.4 million. This breaks the record set in the fines of six dairy companies, including Mead Johnson and Danone, last year. An NDRC spokesman said that the government isn't targeting foreigners and reemphasised that China will punish violaters of the law, regardless of nationality. There have also been reports that Daimler's Mercedes-Benz is being investigated for vertical pricing practices. The move comes after the EU Chamber of Commerce in China released a statement referring to “alarming anecdotal accounts” of intimidation tactics to force companies to accept punishments without a full hearing and pointing out that the European business community is “considering the question of whether foreign companies are being disproportionately targeted”. Finally, the State Council removed an advisor on AML matters from his position because he had taken “huge rewards” from Qualcomm, which is also the subject of an investigation.

Sources:
Financial Times
Bloomberg

It has been a busy August for competition lawyers in China. There seems to be a new story breaking almost every day connected to how China is enforcing its Anti-monopoly Law. The accusations of foreign bias are not going to go away unless China carries out some high profile investigations into domestic companies, and ensures that both the domestic and international parts of a JV in, for example car manufacturing, are treated equally. With that said, many of these foreign companies are not blameless. It is worth noting that China is following the US and Europe in handing out fines to parts makers. Yazaki, a maker of the wire harnesses that control a car's electrical system, was fined US$470 million in the US in 2012.

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SOE paycuts greeted with scepticism

Xinhua news agency said on Monday that President Xi Jinping has called for the government to more tightly regulate salaries at SOEs and adjust any compensation that is “unreasonably high”. The move was seen as part of a wider crackdown on overspending. The South China Morning Post speculated that the cuts could be as high as 50% and would be aimed specifically at SOEs that are involved in finance and banking. According to the 21st Century Business Herald, senior executives at China's largest SOEs earn on average Rmb720,000 (US$117,264) in 2011.

Sources:
Wall Street Journal
Business Insider

Given the astronomical figures paid to the chief executives of Western companies, the initial reaction of most readers to the US$117,000 figure might be to ask what the problem is. But the WSJ article nicely brings out the contradiction in this move. That figure is high when taking into account average wages in China and the fact that these companies are subsidised by the tax payer. There is an additional problem: at the same time as introducing this crackdown, the government is also trying to encourage SOEs to bring in more private investment and, essentially, act more like private companies. If that is the case then they might need to start paying much higher wages to retain talent. If they don't, they will lose their best executives to the private sector. The wage figure quoted is both too high and too low.

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