Who is Next?: China’s Recent Aggressive Antitrust Enforcement Has Led to Trade Concerns

By Jieying Ding

First introduced in 2008, China’s Antitrust Law has a relatively short history and has not generated much attention until now. At one point, it had been called a “tiger without teeth.” However, now the tiger is apparently showing its teeth, hungry for prey. In September, China announced monetary penalties against Volkswagan and Chrysler. Price regulators in Hubei Province imposed a $ 40.5 million dollar fine against Volkswagan, and their counterparts in Shanghai imposed a $5.2 million dollar fine on Chrysler, making the combined fine at a total of $45.7 million dollars. Volkswagan and Chrysler are not alone. Up to twenty foreign companies in a wide range of industries have been under scrutiny, including those in the automobile, technology, pharmaceuticals and food packaging industries. In August 2014, China also fined 12 Japanese auto parts makers a record of $ 201 million dollars for price manipulation. Adding to the worries, Qualcomm, one of the world’s biggest makers of mobile chips, is also under investigation.

U.S. companies may be next in line. Microsoft has been subjected to surprise raids and lengthy investigations recently. Although China has not disclosed the focus of their investigation on Microsoft, the Chinese government has already reacted with concerns to Microsoft’s efforts trying to switch users to its new Windows 8 operating system: China banned procurement of Windows 8 for government officials earlier this year. China also gave Microsoft 20 days to give an explanation.

The recent aggressive raids, investigations, and fines have also pushed foreign actors to react. The U.S. has been trying to bite back. The U.S. Chamber of Commerce issued a recent report, where it accused China of “selective and subjective enforcement” by using “legal and extra-legal approaches.” Moreover, the report also raised a possibility of a new and unconventional approach: lodging a complaint at the World Trade Organization, where China is a member. The report claimed that the new selective enforcement would arguably constitute a violation of W.T.O. law despite being imposed under the guise of competition law.  Moreover, U.S. Treasury Secretary Jacob Lew wrote a letter to a Chinese official, warning about serious negative implications for relations between U.S. and China can arise out of China’s recent actions. The U.S.-China Business Council and the European Union Chamber of Commerce also lodged complaints with the Chinese government.

Although criticized for targeting multinationals as a way to help homegrown industry, China has repeatedly denied such allegations. Chinese Prime Minister Li Keqiang responded, saying “antitrust cases against foreign companies represented a tenth of all such investigations,” and the goal of China’s recent efforts is to ensure a fair environment for competition so as to encourage more foreign companies to enter the China market. For example, three Chinese cement companies were fined a combined $18.6 million for price fixing.

Although tensions are heating up, Volkswagan and Chrysler have accepted their fines, and foreign automobile carmakers have cut their prices proactively to show compliance with the antitrust law. China is too important a market to risk losing access. Qualcomm and Microsoft have said that they are cooperating with Chinese authorities. However, a recent report issued by the U.S. Chamber of Commerce shows that 60% of companies feel less welcome in China than before, and 49% of respondents believe that foreign companies in China are being targeted for attack. This is the next step in the Chinese-American trade relationship.