China passes first-ever anti-monopoly law amid foreign concern

BEIJING: China's parliament on Thursday passed an anti-trust law that could make foreign acquisitions of Chinese companies more difficult, sparking expressions of concern by US and EU business groups.

China's first anti-monopoly law will require a national security investigation and monopoly checks when foreign companies seek to merge with or take over Chinese enterprises in certain sectors.

Legislators said the law was long overdue and necessary to keep pace with the dramatic transformation of China's economy.

"Competition in China's economy has steadily deepened, so of course we need to have such a law," said Huang Jianchu, a member of the National People's Congress committee that reviewed it.   

"Of course, we can't allow some people to use their market positions to eliminate or restrict competition."   

Analysts have said the new measures were prompted at least in part by fears that surging foreign investment could lead to too much outside control of Chinese industry. 

Legal experts and foreign business groups voiced fears the national security provisos in the law, which takes effect next August 1, could as a result be abused. 

"There is always a slippery slope, if you start broadening the concept of national economic security," said Nathan Bush, an attorney in Beijing with the firm O'Melveny Myers.

"The concern is if national economic security is construed so broadly as to encompass all aspects of Chinese commercial and economic policy, including state guided industrial policy, then there could be substantial room for mischief." 

China is likely also concerned that foreign investment is exacerbating a liquidity-fuelled bubble that has propelled stock, real estate and other asset values sharply higher, raising concerns about a coming crash, experts said.   

The law appears to mark a shift in strategy away from policies that have long favoured foreign enterprises. 

"Preferential treatment for foreigners and aggressively bringing in foreign investment will decrease gradually and finally domestic and foreign companies will receive almost equal treatment," said economist Shen Minggao.   

However, that should not have a sharp impact on foreign investment, the Beijing-based Citigroup specialist said. 

But he said China needs an anti-monopoly law as it seeks to reduce the size of the state-owned industries that once monopolised the entire economy.   

"We can't simply take it as being against foreign investors. It's being done now mainly because the authorities have been thinking over how to deal with monopolies by state-owned companies," Shen said.   

Both the American and EU chambers of commerce in China issued statements on Thursday welcoming the law's anti-cartel intent but voiced concerns about potentially unfair application of the national security review.