Regulatory Hostage-taking and Shaming

This chapter examines the myth behind the paucity of appeals against antitrust agencies in China. The primary reason holding businesses back from defying Chinese antitrust authorities is not necessarily the perceived low probability of success in a Chinese court but rather the high transaction costs associated with such an appeal. Chinese antitrust authorities possess wide discretion over enforcement and can proactively apply it to entire firms to settle the cases. Firms operating in China, whether foreign or domestic, are likely to continue to interact with these agencies and their host ministries in the future. Businesses therefore avoid taking an aggressive and adversarial approach for fear of future retribution. In addition, Chinese government agencies are adept at using media strategies during enforcement. In several high-profile cases, the antitrust bureau at the National Development and Reform Commission (NDRC) deftly mobilized public sentiments through the state media, strategically shaming to prevent defiance of their orders, and relentlessly suppressing experts from voicing opinions that might threaten the legitimacy of its measures. In so doing, the NDRC was able to overcome its capacity and bureaucratic constraints, thereby quickly cementing its reputation as an astute and forceful regulator.

Hostage and Peace

This concluding chapter provides a summary of this book’s findings and assesses whether there are any feasible solutions to diffuse the conflict between China and Western liberal democracies, aside from the strategy of disengaging and containing China. It argues for greater economic integration. Economic interdependence raises the costs of conflict and increases the incentives for countries to cooperate. Indeed, there is a preponderance of economic evidence showing that trade can reduce conflict between countries. Thus the expansion of Chinese firms into foreign markets should not be seen as something to be blocked but instead welcomed as an important step towards a more prosperous and peaceful relationship between China and the rest of the world. Conversely, if Chinese firms are discouraged from participation in or even excluded from Western markets, then foreign governments will have less leverage over China. In fact, the policy of decoupling the Chinese economy from Western economies, while a seemingly straightforward response to rising political tensions, is eroding trust and making conflict more likely.

Chinese Antitrust Exceptionalism

This introductory chapter provides an overview of Chinese antitrust exceptionalism and how it poses challenges to the existing global antitrust policy. Among the world's greatest economic powers, China brings up the rear in adopting modern antitrust law. Despite being a relatively new antitrust regime, China has not hesitated to impose harsh antitrust remedies on offshore merger transactions and intervene in business practices aggressively, departing from the usual approach of Western antitrust authorities. However, China is not only exceptional as an antitrust regulator but also as a target of antitrust regulation. In addition to being the second largest recipient of foreign direct investment (FDI) and a principle importer, China is the world’s largest exporter and one of the leading outward investors. In recent years, the swift expansion of Chinese state-owned enterprises (SOEs) into Europe has raised eyebrows of antitrust regulators. Moreover, Chinese manufacturers, coordinated by government-sponsored trade associations, have had to grapple with successive private lawsuits and hefty fines for operating export cartels in the United States.

The EU Merger Probe into China, Inc.

This chapter investigates the EU’s dilemma when applying the existing merger review framework to scrutinize acquisitions by Chinese companies. The EU merger review only acts on acquisitions of controlling interest. This means that Chinese state-owned enterprises (SOEs) can bypass the EU antitrust scrutiny by making minority acquisitions in Europe. However, minority shareholding in rivals can still create anticompetitive effects, as abundant economic literature has demonstrated. In fact, there is a blurred line between SOEs and privately owned enterprises in China, and a Chinese SOE could escape antitrust scrutiny entirely by employing a non-controlling subsidiary as a vehicle to acquire European assets. Given this regulatory dilemma, the chapter argues that a thoughtful response to acquisitions by Chinese SOEs necessitates a shift in regulatory focus from defining what constitutes an undertaking to understanding the effects of Chinese state ownership. It also cautions against deploying competition policy too broadly when reviewing Chinese SOE acquisitions. As the EU’s existing antitrust regulatory framework is not fully equipped to handle Chinese investments, it is not surprising to see that both the European Union and some of its Member States are tightening their foreign investment review to scrutinize Chinese takeovers.

Bureaucratic Politics behind the Rise of Antitrust

This chapter discusses the bureaucratic politics behind the rise of Chinese antitrust regulation. Chinese antitrust agencies are seldom subject to judicial scrutiny, and as a result, have monopolized the administrative enforcement of the Anti-Monopoly Law (AML). The severe sanctions that can be imposed under the AML give high-powered incentives to both government enforcers who want to expand their policy control and businesses who wish to use the law strategically to sabotage rivals. Moreover, the three former Chinese antitrust agencies were not assembled from scratch but were pre-existing departments within large central ministries. Naturally, the bureaucratic mission, culture, and structure of each of these agencies had shaped their enforcement agendas. Much of the discussion revolves around the National Development and Reform Commission (NDRC), as the agency stood out as the most aggressive institution among the three former agencies. Its rich record of enforcement also allows one to assess the link between these institutional factors and the pattern of enforcement. In 2018, the three agencies were merged into a single bureau under a newly created central ministry. The chapter then elaborates on the continuing challenges faced by this new agency, including the bureaucratic hierarchy, the power fragmentation, and the regional inertia.

US Scrutiny over China’s Trade Dominance

This chapter focuses on the US judicial inquiry into Chinese export cartels. It highlights the 2018 decision handed down by the US Supreme Court relating to a group of Chinese vitamin C producers and analyses the optimal judicial response to state-led export cartels. To make sense of the Supreme Court's ruling, the chapter draws upon insights from game theory to unravel the complicated dynamics between the importing and exporting country in export cartel cases. It argues that the optimal strategy for the United States is contingent on the strategy of the exporting country, whose strategy is in turn dependent on the United States' strategy as well as its own domestic politics and trade policy. The optimal regulatory response thus hinges not only on antitrust law but also politics. Viewed in this light, the US Supreme Court resolved the Vitamin C case pragmatically by according a high level of deference to the executive branch.

Weaponizing Antitrust During the Sino-US Tech War

This chapter demonstrates the close interdependence between the regulatory moves of the United States and those of China. Against the backdrop of the bitter Sino-US tech war, it applies game theory analysis of cooperation and conflict to examine the role of antitrust in China’s tit-for-tat strategy against the aggressive US sanctions. The US executive branch has wide discretion in prosecuting foreign businesses and individuals and has strategically used such legal discretion as an instrument of trade and foreign policy against China. China has retaliated in kind by invoking a number of regulatory measures. In particular, the Chinese antitrust authority has flexed its muscles by holding up large mergers between foreign multinationals, amending its antitrust law to allow for high monetary fines and potential criminal liabilities, and threatening to impose heavy sanctions on firms that boycott or refuse to supply key components to Chinese technology companies. As a result, the line between national security and antitrust policy, once belonging to separate spheres, has become increasingly blurred amid growing Sino-US tensions. However, similar to other countries that have applied countermeasures against US sanctions law, China faces significant economic constraints in weaponizing its antitrust law against US businesses.