In a recent spate of antitrust enforcement actions, China has moved against a number of international companies in industries ranging from pharmaceuticals, cement and jewelry to software, milk and auto manufacturers.
Automakers including Audi, Daimler, BMW and Tata have begun dropping prices on parts in response to the actions, and many face substantial fines as well. Many other companies in a broad sampling of sectors are either figuratively holding their breath, waiting for the ax to fall, or protesting to their home countries what they see as targeted treatment of foreign firms. Synchronized raids of multinational corporate offices in China have resulted in data downloads, confiscations and admonitions not to seek legal representation or protest against judgments of illegal behavior.
While Beijing denies that ex-China companies are the ones primarily under the lens, offering examples of domestic firms that have also felt the sting of the enforcement lash, others aren’t so sure. A year ago an investigation directed at companies that sell milk powder for infants resulted in six companies being fined a total of $109 million. Accused of price fixing and anticompetitive behavior, five of the companies were from outside China, including U.S.-based Mead Johnson Nutrition, while the sixth company was headquartered in Hong Kong.
The European Union’s Chamber of Commerce, in fact, has expressed concerns over the increasingly high-profile investigations, saying in a statement, “While the European Chamber recognizes that a number of Chinese companies have been investigated for AML [antimonopoly law] violations, the European business community is also increasingly considering the question of whether foreign companies are being disproportionately targeted in the investigations.”
Investors might be getting a little worried, too, as enforcement intensifies, cutting company profits and imposing fines in the millions of dollars.
Not just the EU’s Chamber of Commerce, but the Chamber in the U.S. as well are hoping to convince China to back off from what they see as one-sided approaches to bolstering home industries, rather than supporting a stronger rule of law.
John Blank, chief equity strategist at Zacks, said that outside pressure on China to change how it goes about investigating companies for what it sees as monopolistic or price-fixing behaviors is unlikely to succeed. He pointed out that China has had plenty of time to decide how it will handle the issue since passing the AML in 2008.
Instead of putting it into practice immediately, he said, they studied how Europe and the U.S. tackled the problem, with a single agency—then decided to follow a different path. Three different agencies deal with antitrust in China: the Ministry of Commerce (MOFCOM), which deals with mergers; the State Administration for Industry and Commerce (SAIC), which handles nonprice-, nonmerger-related issues (such as software bundling); and the National Development Reform Commission (NDRC), which handles price issues (such as price fixing and retail pricing).
The three different agencies look at both vertical and horizontal issues, Blank said.With the auto industry, they’re focusing on vertical integration, such as from parts suppliers, and have attacked the car companies’ methods of pricing for replacement parts.
According to the Insurance Association of China and the China Auto Maintenance and Repair Association, buying all the parts that make up a Mercedes C-Class sedan would cost 12 times as much as the cost of a whole new car—and that’s something the AML agencies are taking a hard look at.