Overseas firms fall foul of China probes
Beijing says crackdowns on foreign firms are aimed at stopping abuses, but critics allege China is using investigations to protect and bolster domestic firms
A woman is reflected on the glass wall of a BMW showroom in central Beijing. An anti-trust probe into global auto makers is being cheered on by car dealers in China, who say that companies such as Audi and Mercedes-Benz have been exploiting their dominance to boost profits. Photograph: Jason Lee/Reuters
Beijing has been sunny and warm, with pollution running at manageable levels, but the mood among foreign companies operating in China is decidedly dark after a series of investigations and fines over antitrust behaviour that foreigners are feeling the keenest.
Investments in China by foreign companies, excluding financial firms, fell 17 per cent in July, the biggest drop in five years, though the ministry of commerce insisted the drop had no connection with the antitrust probes. China has held antitrust investigations into Microsoft, Starbucks, GlaxoSmithKline, Apple, McDonald’s, New Zealand dairy giant Fonterra and many others as Beijing tries to enforce China’s anti-monopoly law (AML), which went into effect in 2008.
It allows the government to impose fines of as much as 10 per cent of a company’s annual revenue. Companies that cooperate can get lighter penalties.
Complaints in mediaReform Commission
And last week, overseas carmakers and components manufacturers were the target of heavy fines. Mercedes-Benz was found guilty of manipulating prices for after-sales services in China, adding to pressure on foreign carmakers in the world’s largest auto market.
The Jiangsu Province Price Bureau found evidence of anti-competitive practices after raiding Mercedes-Benz dealerships in the eastern coastal province and an office in neighbouring Shanghai. Since July, Tata Motors’s Jaguar Land Rover, Mercedes-Benz, Audi and BMW have been among at least seven foreign automakers that have announced price cuts following the NDRC investigation, in an attempt to stave off accusations of anti-competitive behaviour. Chinese media reported that Audi, the best-selling foreign premium car brand in China, would be fined about 250 million yuan (€30.6 million).
China fined 12 Japanese auto part makers 1.2354 billion yuan for manipulating their prices, the country’s economic planner, the National Development and Reform Commission, said last week. The heaviest fine was for Sumitomo Electric Industries at €35.6 million, which is the biggest-ever antitrust penalty for a single company, followed by Yazaki Corp.
Chairman of the American Chamber of Commerce in China Greg Gilligan called for dialogue with US and Chinese officials about rising concerns among its members. The European Chamber of Commerce in China, which represents 1,800 firms here, is normally circumspect in its dealings with the Chinese government.
But the tone of its response to the stories of checks at member companies and punishments imposed, is one of alarm, particularly as it feels European companies are being picked on.
“While the European Chamber recognises that a number of Chinese companies have been investigated for AML violations, the European business community is also increasingly considering the question of whether foreign companies are being disproportionately targeted in the investigations,” the Chamber said in a response. NDRC spokesman Li Pumin insisted the government isn’t targeting foreigners and reiterated past statements that China will punish any violators of its anti-monopoly law regardless of nationality. But the Chamber believes that in some of the industries under investigation, domestic companies have not been targeted for similar violations.
Competition law should not be used as an administrative instrument to harm targeted companies or serve other aims, such as administratively forcing price reductions, it said. “China needs to continue to implement its AML in a transparent, impartial and consistent manner and in a way that is beneficial for consumers and fair for business,” it said.
Cars and spare parts are expensive in China, though, and some domestic producers believe the foreign firms have too much leverage over car dealers and auto part suppliers there, enabling them to control prices. JP Morgan said in a note recently that, in the long term, forcing European carmakers to lower the price of spare parts and imported vehicles could see margins in China normalise to levels seen in Europe.