China: New anti-monopoly law – majors safe, for now
AFTER YEARS in the making, the country's anti-monopoly law came into effect at the start of August. Although it is unlikely to have much of an impact on large upstream and refining investments, foreign companies may feel its force further down the supply chain.
The law has been introduced at a time when the country is opening up some parts of its economy to further foreign investment, allowing companies such as BP, Shell, Total and ExxonMobil to make inroads into the domestic market, especially in wholesaling and retailing gasoline and other refined products. While their operations are probably too small at present to fall foul of tighter monopolies legislation, there may be implications in the future.
"Foreign companies are going to have to be careful not to get too big in certain markets and areas," says Koh Kok Keng, a Singapore-based managing consultant at Wood Mackenzie, a consultancy. "For example, BP has set up a retail operation in Guangdong province and, although that is not very big now, if it wants to expand there in five or 10 years' time, it will have to be careful not to be seen as monopolising that regional market."
The anti-monopoly law covers not only market-share concerns, but also encompasses issues such as price-fixing. This may have implications for how pump prices are set, although analysts note that the government continues to play an important role in pricing, effectively subsidising fuel sales by dictating a "guidance" pricing range within which retailers can then set their own prices.
Analysts say it is doubtful that foreign involvement in the country's tightly regulated upstream sector will be much affected by the legislation. Investments running into hundreds of millions of dollars are already subject to existing investment regulations and the national oil companies' stranglehold over exploration, production and refining is almost certain to be insulated from the new law.
"It seems doubtful that the way the new anti-monopoly body has been structured gives it the power to start wholesale reform of the [upstream] oil industry, which has so many large vested interests and is viewed as an area of strategic national importance," one Asia-based upstream analyst says.
But with just a few weeks' experience of the legislation so far and with many of the details still to be signed into law, it is too early to predict just how problematic, or helpful, it may be for foreign firms.
The EU and US chambers of commerce in China have both welcomed the introduction of the law, noting that it made provisions for further foreign stakeholder involvement in the Chinese marketplace. But they said greater clarification is needed over how it will work.
Concerns have been raised among businesses and legal firms over how the law will be policed. Enforcement duties look set to be divided among the commerce ministry, the National Development and Reform Commission, and the State Administration for Industry and Commerce, raising the spectre of a bureaucratic nightmare for companies trying to comply with still-sketchy new legislation and worries that the different supervising entities may interpret the new law differently.
But meat is gradually being put on the bones of the law. The first regulation to set specific guidelines was announced in early August, saying companies involved in a merger must apply to anti-monopoly authorities if the joint global revenue of the companies involved exceeds Rmb10bn ($1.46bn), or if revenue in China exceeds Rmb2bn. The authorities also need to review the deal if two or more of the firms each reported more than Rmb400m of revenue in China during the previous accounting year, according to China Daily.