DOWN WITH MONOPOLISTS
China’s new anti-trust law.
By Don Durfee

“This is a true, comprehensive antitrust law, similar in scope to the U.S.’s Sherman Antitrust Act with respect to the conduct it addresses.” So says Joy Fuyuno of law firm Paul, Hastings in Tokyo, referring to China’s new Anti-Monopoly Law (AML), just passed and set to take effect on August 1, 2008.

With this new law, the People’s Republic—looking less socialist by the day—has laid another piece of the foundation needed for a market economy. The AML consolidates China’s current hodge podge of competition rules, and advances some new ones. Most will look familiar to anyone doing business in the West (the law is modeled on U.S. and E.U. competition laws). Among other things, the AML prohibits price fixing among competitors or between a company and its suppliers, using a dominant market position to make life miserable for customers and competitors, and mergers that will create concentrations that are bad for competition.

This last provision about concentrations resembles China’s existing merger control rules, which require some deals involving foreigners to file with the authorities. The new rules appear more equitable: they apply to both local and foreign buyers. But as Seung Chong, partner with White & Case and author of a new book about Chinese M&A, points out, it’s not yet certain that the government will repeal the old merger control rules.

As is often the case in China, there are questions about the government’s ability to implement. The AML creates an independent agency, with the idea that a separate entity will have more prestige and can develop expertise in competition issues. But developing that expertise will require some effort, and not just for the new agency. “The courts historically do not have the same experience as other jurisdictions in adjudicating these types of issues, which often require complex market and economic analysis,” says Fuyuno.

The AML also includes a provision about the “abuse” of intellectual property rights. This statute may provide companies being sued for IP violations a defense, since they could launch an antitrust counterclaim.

Similarly, there’s also some concern that Chinese companies will use the AML as a weapon against competitors. This has already happened under China’s previous merger control rules. Chong cites the acquisition of Zhejiang Supor, a Chinese cookware company, by the French manufacturer SEB. Chinese companies, eager to keep a big European competitor out of the market, tried to block the deal by calling for a review. The Chinese authorities obliged, though the deal still closed.