US Firms Protest, China Responds On Antitrust Bias
The volume continues to get louder in the growing chorus of multinationals complaining they are being unfairly targeted in a recent wave of antitrust probes by Beijing, prompting China to reply that domestic companies are also being targeted. The latest headlines have the American Chamber of Commerce in China finally breaking its silence on the matter, joining its European counterpart in voicing its concerns that western firms are being singled out for probes over anti-competitive behavior. Meantime, China has held a couple of high-profile media events to defend its approach, and now is turning up its campaign with new reports of domestic firms that are also being punished for anti-competitive behavior.
The 2 big questions in this growing war of words are: Where is all of this going, and what exactly is at stake? In answer to the first question, China is clearly becoming worried that the recent wave of criticism over antitrust probes against firms like Microsoft (Nasdaq: MSFT), Qualcomm (Nasdaq: QCOM) and many major foreign car makers will ultimately result in action against it at the World Trade Organization. That action would most likely take the form of a formal complaint by the US and EU that China discriminates against foreign companies.
From a longer-term perspective, China is also worried that a growing perception of favoritism towards domestic firms could put a chill on foreign investment, which is a key element of Chinese economic growth. Foreign makers of higher value-added products and services like cars and high-tech goods could become especially worried, since many of the foreign companies being investigated come from those sectors.
I’ll give my own two-cents shortly on how all of this is likely to end, but first let’s take a look at the latest headlines starting with the criticism coming from the American Chamber of Commerce in China. The chamber is often low-key on this kind of issue, but has now taken the rare step of voicing its concerns that the recent series of antitrust probes are “selective and subjective” in targeting big multinationals. (English article)
Among 164 of the chamber’s members surveyed in a recent poll, half said foreign firms were being unfairly targeted in the recent wave of antitrust probes, and another quarter said they weren’t sure. Only 26 percent said they thought foreign and Chinese companies were being treated equally in the matter. The American chamber’s long-overdue statement comes nearly a month after its EU counterpart released its own report expressing similar concerns. (previous post)
China has responded to the allegations by taking the rare step of making 2 of its top anti-monopoly investigators available to the media, one at a press conference and the other in a lengthy newspaper interview. (previous post) In one of those events, the official pointed out Chinese companies have also been probed, including a recent investigation into Chinese liquor makers.
Now another news report is also pointing out that 23 domestic insurance companies in eastern Zhejiang province were recently fined more than 110 million yuan ($18 million) for price fixing. (English article; Chinese article) A separate report says that another government ministry is investigating the nation’s big 3 telcos for excessive gift giving (Chinese article); and yet another points out that the Microsoft investigation began in response to complaints by several companies about the software giant’s business practices. (Chinese article)
Clearly the western companies are frustrated and China is worried, which brings us back to the original question of where all of this will end. At this point it’s unlikely that the regulators will back down in any of the current investigations, as doing so would only seem to confirm western perceptions that the probes were biased. Instead, we may finally see the current wave of probes against multinationals take a much-needed pause after Microsoft and Qualcomm investigations wrap up. We could also see one or two high-profile investigations against big state-owned firms, as Beijing tries to show that it treats all businesses equally.
Bottom line: Beijing will wrap up probes of Microsoft and Qualcomm and then quietly end its recent wave of antitrust investigations, as it seeks to avoid a WTO complaint and scaring off foreign investment.
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