A coherent competition policy does not yet exist in China. This is understandable. Prior to 1979, China was predominantly a planned economy where almost all prices were determined by the government. In this environment, there was little need for an anti-competition law.
At present, the Anti-Unfair Competition Law, the Price Law, the Foreign Trade Law, and many other Chinese laws and regulations touch on some aspects of non-competitive behaviors. They cover a wide range of unfair trade practices, ranging from commercial bribery, false advertising and the defamation of competitors to the abuse of market power by monopolies, anti-competitive agreements and various price manipulations.
Although some of these laws and regulations were promulgated as early as 1993, the effectiveness of the existing legal framework for antimonopolistic practices in China is fairly limited. This is in part due to the fact that different agencies have overlapping jurisdiction in cases of monopolistic practices, inviting confusion in the enforcement process. Moreover, lack of an unified law also creates unclear legal sanctions for certain monopolistic practices.
Efforts to unify these laws began in 1987 when the Legislative Bureau of the State Council formed an Antimonopoly Law working group. Drafting of the Antimonopoly Law commenced in 1994. In early 1999, the National People’s Congress resolved to draft a comprehensive piece of legislation on monopoly activities. A final draft of the Antimonopoly Law was submitted to the State Council and the law is anticipated to be enacted by the National People’s Congress in 2006.
At the moment, it is unclear which authority will be charged with enforcing the Antimonopoly Law once enacted. One proposal advocates different agencies to enforce different provisions. Another advocates a new ministry-level authority to enforce all provisions.
Though the Chinese government has not published an official draft of the Antimonopoly Law, a draft dated March 2005 was circulated unofficially. According to the draft, the four kinds of monopoly practices are prohibited. First, agreements to restrain competition. Second, abuses of market position. Third, market monopoly caused by mergers and acquisitions. Last, manipulation of administrative power. However, the draft also provides exemption from such prohibitions.
A number of observations follow concerning the draft. First, the draft does not distinguish foreign and domestic firms. However, it will likely be targeted at foreign firms with commanding positions in the Chinese market. Second, the draft targets administrative monopoly. Monopolistic behavior on the part of the government has proved one of the major deterrents to fair market competition for years in China. Attaching administrative monopoly may prove to be a more formidable task than anticipated. Third, the draft omits many key elements of foreign antitrust doctrines and incorporates some disfavored practices.
Further developments on this front are eagerly awaited.
Originally appeared in Dorsey's China Report