China's Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies

Santa Clara Journal of International Law, Apr 2016

By Daniel C.K. Chow, Published on 04/12/16

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China's Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies

Santa Clara Journal of International Law China's Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies Daniel C.K . Chow 0 Recommended Citation 0 Daniel C.K. Chow, China's Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies , 14 Santa Clara J. Int'l L. 99 (2016). Available at: China’s Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies Daniel C.K. Chow  Frank E. and Virginia H. Bazler Chair in Business Law, The Ohio State University Michael E. Moritz College of Law. The author lived and worked in China as in-house counsel at a multinational corporation with substantial business operations in China. The author was involved in all aspects of legal work for the company, including intellectual property and unfair competition law issues. China’s recent enforcement of its Anti-Monopoly Law (AML) has caused alarm and concern among Multinational Companies (MNCs). Many MNCs believe that the primary purpose of China’s AML is not to create open, fair, and market-based competition but is to serve the Industrial Policy goals of China’s ruling Communist Party. These goals result in the enforcement of the AML in favor of Chinese companies, especially China’s massive State-owned Enterprises, at the expense of MNCs doing business in China. In addition, China’s AML enforcement authorities seem to be using the AML to force MNCs to transfer their valuable technologies (intellectual property rights) at below market rates to Chinese firms and to force price reductions of their products sold in China. AML enforcement authorities also appear to be using the AML to protect famous Chinese brands from being acquired by foreign firms. China’s use of the AML appears to be consistent with China’s overall goal of strengthening its position as a global economic power. I. Introduction China’s Anti-Monopoly Law (AML) has been in effect for only seven years since 2008,1 but since its inception it has led to controversial results and recent trends in its enforcement is a rising cause of concern for multinational companies (MNCs).2 The AML, as enforced, contains at least three trends, set forth below, which pose significant risks for MNCs actively doing business in China. These risks apply as well as to MNCs that have only a small presence in China, but which may require China’s approval of a merger of Chinese business entities as part of a world-wide merger of the parent MNCs. What are these risks that so concern MNCs? First, for China, the main purpose of the AML is not to promote fair, open, and market-based competition; rather the goal of the AML is at least in part to further the Industrial Policy goals established by the Communist Party (the Party), which often means that the AML enforcement authorities will favor Chinese companies, usually state-owned enterprises, over foreign MNCs.3 China views MNCs as having competitive advantages in capital, technology, and management skills and seeks to offset these advantages through the use of the AML.4 Second, China applies the AML in ways that are openly discriminatory against MNCs forcing MNCs to sell assets to China’s SOEs or to provide access to technology (intellectual property) to 1. 2. 3. 4. See Anti-Monopoly Law of the People’s Republic of China (adopted at the 29th Session of the Standing Committee of the Tenth Nat’l People’s Cong., effective Aug. 1, 2008) [hereinafter AML]. See Neil Gough, Chris Buckley, & Nick Wingfield, China’s Energetic Enforcement of Antitrust Rules Alarms Foreign Firms, N.Y. TIMES (Aug. 10, 2014) , http://www.nytimes.com/2014/08/11/business/ international/china8217s-energetic-enforcement-of-antitrust-rules-alarms-foreignfirms.html?_r=0. See Part II.A-II.B infra. See Part II.B infra. China’s SOEs as below market rates.5 Third, although China’s laws on the books provide for appeals to both administrative bodies and to courts in AML cases, there is in reality is no meaningful recourse from decisions of China’s AML enforcement authorities.6 This is because MNCs are unlikely to challenge an AML enforcement authority’s decision due to fear by MNCs of retribution. In addition, the Party controls the government bureaucracies, the courts, and all entities that might consider an appeal.7 Party control means that the first AML entity has followed Party policy at the enforcement level and thus any entity considering an appeal will also likely follow Party policy in upholding the actions of the enforcement authority.8 An appeal may not only result in retribution but the chances of a reversal of an undesirable outcome at the enforcement level by an appellate authority may be illusory.9 This article will develop these themes as follows: Part II provides a brief overview of the AML and the Industrial Policy goals that the AML seeks to further. As strengthening SOEs are a vital party of China’s Industrial Policy, Part II will also consider the vital role of SOEs in China’s economy as well as the thre (...truncated)


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Daniel C.K. Chow. China's Enforcement of Its Anti-Monopoly Law and Risks to Multinational Companies, Santa Clara Journal of International Law, 2016, pp. 99, Volume 14, Issue 1,