China expected to increase antitrust probes

China is expected to follow its antitrust move against two telecom operators with similar action in other sectors, such as technology, according to legal experts and industry executives. The price supervision and anti-monopoly bureau at the National Development and Reform Commission surprised observers on November 9 by announcing it was investigating China Telecom and China Unicom, the two state-owned fixed-line carriers, for allegedly abusing their dominant market position to keep potential competitors out of the broadband business. If found guilty, the companies could face fines of up to 10 per cent of their broadband revenues for 2010. Experts believe investigations into other sectors could now follow, with possible implications for a number of big Chinese companies listed in Hong Kong and New York. “It can be seen as a message to the world that this part of the anti-monopoly law is now open,” said Gerry O’Brien, a consultant at Mayer Brown, the law firm, in Hong Kong. “In the past, vigorous enforcement of the law has largely been confined to merger control and cartels, but now regulator-led cases about abuse of dominance may increasingly come into focus.” When China first adopted its anti-monopoly law in 2007, foreign lawyers expressed the suspicion that the government was unlikely to use the law against state enterprises that have a stranglehold on many areas of the domestic economy. Experts voiced concerns that it could be used mainly to block foreign companies from building strong positions in the domestic market. Beijing added to those fears when it beefed up the law one year later with sweeping national security provisions, which make it easy to reject foreign takeovers of Chinese companies in a number of sectors. Indeed China’s antitrust regulators have so far been active almost exclusively in scrutinising mergers and acquisitions. The government has reviewed about 300 cases, imposed conditions on seven of them and vetoed one – the proposed acquisition of Chinese juice maker Huiyuan by Coca-Cola in 2009. The NDRC’s decision to act on long-running complaints against the leaders in the broadband market could signal a marked change to all this. Over the past three years, consumers have also raised complaints about alleged unfair pricing by dominant state companies such as Sinopec, the petrochemical company, and China Mobile, the mobile market leader. Lawyers say these may now become likely targets for the regulators. “We are likely to see regulators take up dominance cases in the technology industry as well”, says Mr O’Brien. One of the companies at risk of increased scrutiny is Baidu, which accounts for 78 per cent of revenues in the Chinese online search market, according to Analysys, the internet research firm. As early as 2008, when Baidu’s market share was only 63 per cent, a group of small businesses asked the State Administration for Industry and Trade, the other regulator in charge of abusive dominance investigations, to investigate whether Baidu was abusing its dominant market position. The companies, former online marketing customers of Baidu, complained that the internet company had manipulated its search results not to display their websites at all or in much lower places after they refused to buy ads on Baidu. Consumers and lawyers have repeatedly raised similar complaints since, but the regulators have yet to act. Other potential targets are companies such as Tencent, Qihoo and Kingsoft, which have repeatedly accused each other of using their dominance in one market segment such as antivirus software or instant messaging to force consumers to drop competing services.