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China Trends #4 - China’s Anti-Monopoly Law: More Than Just a Piece of Paper?

BLOG - 20 December 2019

The 2008 anti-monopoly law is the guardian of the modern market economy, writes Shi Jichun, professor at Renmin University’s School of Law.1 Since the anti-monopoly law is based on the existence of a market economy, there was no space for it during China’s planned economy era. However, with the introduction of the market-oriented economic reforms and the introduction of the market competition mechanism, China needed a legal context to oppose monopolies and safeguard competition, eventually leading to the birth of the anti-monopoly law in 2008. The legislation of the anti-monopoly law in China was a "liberalization of mind, deepening  of the market economy concept into people’s hearts (深入人心) and a huge step in the establishment of fair competition", declares Wang Xiaoye, researcher at the Institute of Law (Chinese Academy of Social Sciences).2

The adoption of the anti-monopoly law was a milestone in China’s economic reform, and a significant part of China’s attempt to improve its socialist market economy since the Deng Xiaoping era. In 1978, realizing the increasing gap between China and developed countries, Deng announced the Open-Door Policy. The logic behind it was simple: if China "closes its door and refuses to make any progress (关起门来,固步自封)", it will never develop.3 In addition, the opening-up of China had to be complemented with domestic reforms, for it to increase its capacity to engage the world.

Since the anti-monopoly law is based on the existence of a market economy, there was no space for it during China’s planned economy era.

During the past decades, according to Zhang Zhuoyuan, researcher at the Institute of Economic (Chinese Academy of Social Sciences), China’s economic reform has followed two main lines of policy.4 The first one, focusing on the consolidation of the socialist economic system, has three key aspects. Firstly, it gave the green light to individual and private economies, which had ceased to exist due to the earlier transition to socialism (1953-1957).

China found itself in a situation where it had abundant labor but no jobs available (人浮于事).5 The country was in need of 20 million new job positions every year.6 The second aspect was the establishment of Special Economic Zones. Despite the lack of clarity over whether they should "follow capitalist or socialist characteristics (姓资还是姓社)", the Special Economic Zones were considered to be essential to attract foreign investments, advanced technology acquisition, and trade increases. They were also seen as an opportunity to observe and learn from capitalism. Finally, there was the reform of corporate ownership, a structure that created mixed responsibilities for state and enterprises. 

The other main line of policy is the transition from a planned economy to a market economy, which allowed market-based resource allocation. The goal was to create a tailored system that takes advantage of both effective market (有效市场) and active government (有为政府).7 In other words, to let both the "invisible hand (看不见的手)" of the market and the "visible hand (看得见的手)" of the state to play their role.8 Previously, in the Mao era, the potential of the market was ignored, leaving it no role to play, until it became a passive market with no bottom up influence whatsoever.9 A significant element of this market economy transition is the anti-monopoly law, which was approved in 2007 and took effect on August 1, 2008. However, China still lacks the culture of free competition, besides awareness of companies, government and public with regard to anti-monopoly.10 This was also the reason why the legislation process was extremely complex and took twenty years of effort (1987-2007).During the legislation process, the strategy of both "going out" (走出去) to and "inviting in" (请进来) other countries was adopted.11 In other words, the team drafting the law traveled to countries that had an advanced anti-monopoly law, such as Europe, the United States, Australia and Japan, to learn from their experiences. At the same time, the draft law was shared with foreign experts and officials for comments and advice. However, two major obstacles were encountered.

The fundamental one was the law’s applicability to the Chinese system. As Wang recalls, some scholars were against the idea, concerned as they were that the size of Chinese companies was too small compared to U.S. large-scale companies. They believed that China even needed to promote monopolies to foster the emergence of big companies. Wang, however, points out that others argued in favor of the anti-monopoly law.

The government’s administrative monopoly restrains the competition far more than the companies.

The other obstacle was how to deal with the existing administrative monopoly. The interests of State-Owned Enterprises (SOEs), created during the era of planned economy, were highly linked with the interests of the executive branch. With the support of the state, they already have a monopoly in their respective sector. Therefore, both the SOEs and the executive branch hoped to be exempted from the law. The government’s administrative monopoly restrains the competition far more than the companies. If the government is not restrained from impeding competition, then the anti-monopoly law would likely be "just a piece of paper  (花瓶)".12 Hence, even though the part covering the issue of administrative monopoly was deleted from the first law draft of 2005, the later version inserted it back in.

However, the inclusion of administrative monopoly did not solve the issue of monopoly of SOEs. Xu Xiaosong, Deputy Director of the Institute of Economic Law (University of Political Science and Law of China), advocates for a separate anti-monopoly regulatory framework focusing on SOEs.13 She points out that SOEs and the existing anti-monopoly law are fundamentally incompatible, as SOEs are created by the state to intervene in the market, not to contribute to market competition. In addition, Article 7 of the anti-monopoly law creates a duty for the state to protect business activities related to the state-owned economy. Xu interprets this as a recognition of the legitimacy of the SOEs’ monopoly status. A study published by Unirule Institute of Economics in 2012 also addresses the problem of Article 7.14 It considers the Article absolutely redundant (画蛇添足), and a source of misunderstanding. For instance, "monopoly related to the lifeline of the national economyz" should not constitute a category by itself. However, the study explains, contrary to the view of Xu, that from a strict legal perspective, the anti-monopoly law does not exempt administrative monopoly; still, further measures are required to break administrative monopolies. Among these measures is the withdrawal of SOEs’ from profit-making sectors.

From 2008 to 2018, 164 monopoly agreement cases and 44 market dominance abuse cases have been investigated and treated. 

From 2008 to 2018, 164 monopoly agreement cases and 44 market dominance abuse cases have been investigated and treated.15 Over the issue of anti-monopoly, China has its latecomer advantage (后发优势), allowing it to learn from other countries experiences and improving its enforcement capability step by step.16 In 2018, the State Administration for Market Regulation was established, which is under the direct supervision of the State Council, to address the enforcement issue of the anti-monopoly law.

Previously, the enforcement power was spread across the Ministry of Commerce, the National Development and Reform Commission, and the State Administration for Industry and Commerce. The three authorities were "seemingly in harmony but actually at variance" (貌合神离), due to their difference in priority and area of expertise.17 Moreover, given a level of authority that is only at the bureau level (局), they tended to "have hearts but lack the strength (心有余而力不足)" when dealing with some SOEs that had higher rank, meaning they did not have the power to interfere with the activities of these SOEs.18 Following its establishment, in July 2019, the Chinese State Administration for Market Regulation issued three regulations19 that are supplementary to the anti-monopoly law. These regulations increase the practicality and transparency of the anti-monopoly law.20

Apart from the improvement above, an amendment of the 2008 law is also underway. The preparation for the draft has been completed, and it is now in the consultation phase. As stressed by Liu Zhicheng, researcher at the Chinese Academy of Macroeconomic Research, updating the law is urgent.21The current version can no longer keep up with the new emerging forms of competition and monopoly. In addition, there are still many industries that are highly regulated and restrict foreign investment: for instance, the oil, power and communication industry. Developed countries have more competition in these sectors, resulting in more commodity price flexibility and more services options. China’s market reform is insufficient and is lagging behind Europe and the United States.22 Making the anti-monopoly law more effective, both in terms of the willingness to implement it and enforcing it, remains a pressing issue.

As Xi Jinping said during his speech at the 40 years anniversary conference of China’s reform and opening-up, these symbolize the awakening of China, but there is still a long way to go.23 However, with the current attempts to create Chinese champions in certain sectors, it is unclear whether China’s and Xi’s real intentions is to create a fair market competition, or to prevail over its global competitors. There may be more clarity on the actual direction sought in policy terms when the amended version of the anti-monopoly law is published.

 

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1Shi Jichun, "Anti-Monopoly Law and Socialist Market Economy《反垄断法》与社会主义市场经济," The Jurist, No. 1, 2008, http://www.cssn.cn/fx/fx_jjfx/201503/t20150311_ 1541380.shtml

2Zhao Xin & Zhou Guohe, "The Anti-Monopoly Law Is a Milestone in China’s Economic System Reform 反垄断法是中 国经济体制改革的里程碑," Shenzhen Special Zone Press, 24 September 2019, http://theory.workercn.cn/244/201909/24/ 190924094841281.shtml
 
3"Deng Xiaoping and the Third Plenary Session of the 11th CPC Central Committee 邓小平与中共十一届三中全会," en.people.com, 23 January 2019, http://dangshi.people.com.cn/n1/2019/0123/c85037-30586524.html

4Zhang Zhuoyuan, "The Two Main Lines of China’s Economic Reform 中国经济改革的两条主线," Social Sciences in China中国社会科学, No. 11, 2018 http://www.cssn.cn/zx/201908/t20190824_4961702.shtml

5"Deng Xiaoping and the Third Plenary Session of the 11th CPC Central Committee 邓小平与中共十一届三中全会," en.people.com, 23 January 2019, http://dangshi.people.com.cn/n1/2019/0123/c85037-30586524.html

6Zhang Zhuoyuan, "The Two Main Lines of China’s Economic Reform 中国经济改革的两条主线," Social Sciences in China中国社会科学, No. 11, 2018 http://www.cssn.cn/zx/201908/t20190824_4961702.shtml

7Lin Yifu, "Achievements, Experiences and Challenges of China’s Economic Reform 中国经济改革的成就、经验与挑战," Economic Times, 29 December 2018, http://www.cssn.cn/ zm/201812/t20181229_4803850.shtml

8"Exploration and Enlightenment of the Economic System over the Past 70 Years 70 年来经济体制的探索与启示," Economic Times, 16 September 2019, http://theory.people. com.cn/n1/2019/0916/c40531-31354094.html

9Ibid.

10Shi Jianzhong, "Tenth Anniversary of the AntiMonopoly Law: Effectiveness of Implementation and Direction for Strengthening 反垄断法十周年:实 施成效与强化方向," Guangming Daily, 29 July 2018, http://www.cssn.cn/jjx/jjx_gd/201807/t20180729_ 4512809.shtml

11Wang Xiaozhang, "My Anti-Monopoly Law Research Path 我的反垄断法研究之路," Iolaw.org, https://www.iolaw.org.cn /showArticle.aspx?id=3687

12Zhao Xin & Zhou Guohe, "The Anti-Monopoly Law Is a Milestone in China’s Economic System Reform 反垄断法是中 国经济体制改革的里程碑," Shenzhen Special Zone Press, 24 September 2019, http://theory.workercn.cn/244/201909/24/ 190924094841281.shtml

13Sun Jin & Zhang Tian, "Thoughts on the Application of the Anti-Monopoly Law to Monopoly of SOEs 关于《反垄 断法》对垄断国企适用问题的思考," Research on Rule of Law, No. 8, 2014, http://www.cssn.cn/fx/fx_jjfx/201410/ t20141008_1352808.shtml

14"The Causes, Behaviors, and Termination of Administrative Monopoly in China 中国行政性垄断的原因、行为与破除," Unirule Institute of Economics, 2 August 2012, https://unirule. cloud/index.php?c=article&id=3334

15Shi Jianzhong, "Tenth Anniversary of the Anti-Monopoly Law: Effectiveness of Implementation and Direction for Strengthening 反垄断法修订要解决执法中最迫切问 题," Guangming Daily, 29 July 2018 http://www.gov.cn/zhengce/2018-11/17/content_5341255.htm

16Shi Jianzhong, "Tenth Anniversary of the Anti-Monopoly Law: Effectiveness of Implementation and Direction for Strengthening 反垄断法十周年:实施成效与强化方向," Guangming Daily, 29 July 2018, http://www.cssn.cn/jjx/jjx_ gd/201807/t20180729_4512809.shtml

17Ibid.

18"Speeding Up the Merger of Three Anti-Monopoly Authorities 反垄断机构"三合一"全面提速," Xinhua, 25 May 2018, http:// www.xinhuanet.com/fortune/2018-05/25/c_1122886715.htm

19Interim Regulation Prohibiting Monopoly Agreement(禁 止垄断协议暂行规定), Interim Regulation Prohibiting Conduct Abusing Dominant Market Positions (禁止滥用市场支配地位 行为暂行规定),Interim Regulation Preventing Conduct Abusing Administrative Rights to Eliminate or Restrict Competition(制 止滥用行政权力排除、限制竞争行为暂行规定)

20"Three Supporting Regulations Are About to Be Implemented 三部配套规章实施在即," Xinhua, 12 July 2018, http://www. xinhuanet.com/fortune/2019-07/12/c_1210191674.htm

21Ibid.

22"Analysing China’s Economic System Reform and Economic Growth 浅析中国经济体制改革与经济增长," Modern Business Magazine, No. 3, 2019, http://www.xdsyzzs.com/ guanlizongheng/5022.html
 
23"Speech at the 40th Anniversary of Reform and Opening 在庆祝改革开放40周年大会上的讲话," Xinhua, 18 December 2018, http://www.xinhuanet.com/politics/leaders/2018-12/18/ c_1123868586.htm

 

 

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