Consumers are benefiting after six milk powder companies slashed prices by up to 20 percent following an antitrust probe

After infant formula manufacturers announced a price cut in August, 29-year-old Wang Dong decided to postpone buying a new car. The announcement to slash prices inChinaby up to 20 percent  was made by six milk powder companies soon after the country's economic planner, the National Development and Reform Commission (NDRC), unveiled an antitrust probe. The probe's price-slashing effect boosted Wang's confidence that a recently launched investigation into the country's auto sector would have similar results.

"If a probe can work on the milk powder price, it would possibly influence the auto market as well," said Wang, who is prepared to play a wait-and-see game.

Wang is likely right. Recently, Xu Kunlin, head of the anti-monopoly bureau at the NDRC, said on a China Central Television (CCTV) program that the NDRC would investigate industries that have an impact on the lives of ordinary Chinese. 

Putting the probes into perspective, many believe that they indicateChina's determination to enforce antitrust crackdown in order to maintain competitive order in the market.  

Level playing fields

After a scandal involving contaminated milk and infant formula manufactured by domestic companies that killed six infants in 2008, Chinese parents rushed to snap up foreign brands, prompting a  surge in the foreign firms' market share inChinaand an annual price increase of 30 percent over the past years. On August 7 of this year, the NDRC announced fines totaling a record 670 million yuan ($108 million) against six infant formula manufacturers, five of which are foreign-invested,  Mead Johnson Nutrition and Danone among the investors. None contested the penalties.

While Chinese consumers are applauding stricter enforcement, the recent increase in antitrust investigations has aroused concerns for foreign companies with operations inChina. 

In January, the NDRC imposed fines on several TV-panel manufacturers, mainly Japanese and Korean companies. Recently, officials' focus has shifted to the prices of foreign vehicles.

Some critics speculate that the recent antitrust action is specially targeted at foreign companies, with Reuters characterizing the situation as "a worsening relationship between foreign companies andChina's array of regulators."

But local companies have also been affected by the  NDRC's bolstered efforts. In June, domestic premium liquor makers Moutai and Wuliangye were fined a total of 449 million yuan ($71.3 million) for forcing retailers to price fix.

"NDRC is not the only antitrust enforcement agency inChina," said Deng Zhisong, a lawyer from T&D Associates inBeijingwho disagreed with Reuters' interpretation. "In the 12 cases released by the State Administration for Industry and Commerce (SAIC), all the investigated are Chinese enterprises."

"Investigations focus on monopolistic conduct, not the entities behind it," Xu noted. "Any company that violates the law will be thoroughly investigated, no matter what kind of enterprise it is."

Many LCD panel companies that were investigated inChina were also fined  by the European Commission in 2010 and targeted in investigations by theUnited States.

Ministry of Commerce Spokesman Shen Danyang said that foreign-invested enterprises have become an important part ofChina's economy and played an important role inChina's economic growth over the past 30 years afterChina's reform and opening up. Most of them engage in law-abiding business practices; but if there are any acts involving violations of the law, they should accept legal sanctions, he said.

All recent antitrust probes serve the goal of establishing an equal and competitive market environment, Shen added. 

Legal loopholes

As the NDRC has ramped up its activity, public speculation has been sparked about which sector will be its next target. In a CCTV interview, Xu said petroleum, telecommunications, banking and the auto sectors could also be investigated for antitrust violations.

His words sent an inspiring message to the public. For years there has been widespread discontent about monopolies in crucial sectors where state-owned enterprises maintain market dominance, fostered under administrative protection and preferential policies.

"The enforcement of the Anti-Monopoly Law will face a lot of pressure since it will affect the interests of many large enterprises, which are usually closely connected to local authorities," said Liu Xu, a researcher at Tongji Intellectual Property and Competition Law Research Center.

China's Anti-Monopoly Law only became effective in 2008 and was very low-key until the end of 2011, when it came down hard on two monopoly giants in the  telecommunications industry. However this investigation has yet to yield any penalties.

Following Xu's words, the telecommunications industry is likely back on  the NDRC's antitrust agenda. It's widely predicted that there will be a price slash in 2013.

Compared with other countries' competition laws that date back a century or more,China's five-year-old Anti-Monopoly Law still needs further development, especially on the relevant rules, Liu said. Otherwise, it would leave loopholes through which various powers could intervene.  

"Under an imperfect anti-monopoly law, state-owned enterprises, private enterprises and foreign companies are all likely to exploit its loopholes," Liu said.