China Flexes Regulatory Muscle With Dole, LCDs 罚款与搁置审批 中国监管部门开始发力
Two new cases are showing how Chinese regulators are becoming increasingly assertive in the global marketplace, with Beijing agencies fining the world’s top LCD makers for price fixing in one instance and holding up a major sale by global US fruit giant Dole Food (NYSE: DOLE) in the other. The former case, which involves Korea’s Samsung Electronics (Seoul: 005930) and LG Display (Seoul: 034220) and 4 Taiwanese firms, looks like a very tentative step for China into an arena that is already strictly patrolled by western regulators who combat market manipulation. The latter case is a bit more interesting and potential troublesome, as it has slightly political overtones that could be the result of recent tensions between China and Japan over a territorial dispute.
Let’s start with a look at the first case, which has seen Chinese regulators fine 6 makers of liquid crystal displays (LCDs), the main component in most flat-screen TVs and computer screens, a total of 353 million yuan, or about $56 million, for price fixing between 2001 and 2006. (English article) China’s National Development and Reform Commission (NDRC), the country’s state planner, said the representatives of the 6 companies met more than 53 times to fix prices at artificially high rates, which ultimately hurt many Chinese TV makers that purchased such panels.
The significance of the move lies in the fact that it marks the first time China has levied such a fine against foreign firms, reflecting its future intent to protect both its consumers and domestic companies from unfair competition. The size of the actual fines is quite small, averaging less than $10 million for each of the 6 companies. What’s more, the NDRC’s decision comes after similar investigations in the west, including an EU investigation that saw the major manufacturers fined nearly $2 billion collectively in December. But the fact that the NDRC is stepping into this arena at all means we can probably expect to see it become more assertive in cases involving major global companies that affect Chinese consumers and manufacturers in the years ahead.
Moving on, the second case has seen Dole announce that it is still awaiting Chinese regulatory approval for the sale of its worldwide packaged foods and Asian fruit business to Japan’s Itochu Corp (Tokyo: 8001) for $1.7 billion. (company announcement) The deal was first announced in September, and since then has been approved by all of the other countries that must give it the green light except for China. No reason was given for the delay, which seems a bit strange due to the fact that it seems unlikely the deal would have any monopolistic implications for a Chinese market where much of the fruit is locally grown.
In its statement, Dole said that China’s anti-monopoly regulator, the Commerce Ministry, didn’t even accept its application until December 11, with no reason given for the 3 month delay between the deal’s initial announcement and the actual application submission. All anyone can really do in this case is guess as to why China is delaying its approval of the deal.
But China watchers will note that the September time frame when the deal was first announced also corresponded to the time when a territorial dispute flared up between China and Japan over the ownership of a small island chain. That dispute went on to see relations between the 2 countries take a nosedive, with Chinese consumers boycotting many Japanese goods, most noticeably Japanese cars. (previous post)
While no one is blaming the dispute for the delays in this particular case, the absence of any other major reason certainly certainly makes Beijing’s foot-dragging look like it may be politically motivated. The Commerce Ministry has a track record of vetoing or holding up other deals for political reasons, including its controversial decision to ban the sale of top domestic juice maker Huiyuan (HKEx: 1886) to Coca Cola (NYSE: KU) in 2009. It has shown increasing signs of becoming a market-focused regulator in many of its global M&A decisions over the last 2 years, as it seeks to join the ranks of other major countries that act as fair trade watchdogs. But this latest case does illustrate that politics could still be a factor in some future decisions, creating an extra risk element for any global companies that do major business in China when considering M&A.
Bottom line: New cases involving China’s first-ever price-fixing fines and the delay of approval for a major global deal reflect Beijing’s increasing assertiveness in global trade cases, where politics will continue to be a factor.
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