China passed the landmark “Anti-Monopoly Law” on August 30, 2007 after more than a decade’s deliberation. (Landmark anti-monopoly law passed, China Daily/Xinhua; Investors fear over China monopolies law, Financial Times). The law reads “As well as anti-monopoly checks stipulated by this law, foreign mergers with, or acquisitions of, domestic companies or foreign capital investing in domestic companies' operations in other forms should go through national security checks according to relevant laws and regulations.” However, more details remain to emerge. It will be effective as of August 1, 2008.
Three interesting features stand out. First, the law authorizes the Chinese government to undo any foreign acquisition of domestic companies in the name of “national security reviews.” (Sounds familiar? Yes, the Dubai Port World’s aborted transaction…) Second, to the Western world’s surprise, the law provides certain disciplines to China’s still prevalent state-owned enterprises in the name of “administrative monopolies.” Third, the law opens a way to restrict foreign enterprises’ IP rights when they abuse them to create monopolistic situations. (Think of the recent Microsoft case in Europe. Not surprisingly, this is the fear factor to foreign investors who suspect this might be a vehicle for protectionism).
Of course, China should do lots of preparation before its official effectuation next August, including enacting more detailed decrees and internal regulations to implement this framework statute. Furthermore, implementation itself will be a big challenge, and experiment, to China as well as to its trading partners and investors. One possibility is that the U.S. might use its recognition of China’s “market economy” status in the antidumping investigations as a leverage to push China’s orderly implementation of this law to the U.S. favor. After all, if China really wants to prove that its economy is run by a market mechanism, it should demonstrate its commitment to the competition disciplines embedded in the law. After all, the law seems to be a double-edged sword to China.