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China’s attack on foreign companies is a serious matter. It started soon after Xi Jinping took his government office as president in March 2013 and has continued almost unceasingly since, with inquiries into Microsoft, Daimler, and others disclosed last week. While firms do business in China at their own risks, Beijing’s actions do cast a bit of doubt on the belief that Xi’s administration is truly intent on economic reform.
There is nonetheless a humorous side, if you’re not an employee or stockholder of the companies involved. In describing the most recent events, official news agency Xinhua mentions 15 foreign car companies being investigated under China’s Anti-Monopoly Law.
If you took an econ class or two in college, it might seem odd to accuse 15 companies in the same industry of being monopolies simultaneously. If you’re a lawyer or someone else with no knowledge of economics, you could fall back on the Greek root monopolion, which is something like the right of exclusive sale.
It’s hard to reconcile the number 15, and more firms are being looked at, with the terms “mono” or “exclusive.” The obvious way out is that the targeted group is acting like a cartel, colluding to suppress competition. Except auto firms are very clearly not acting like a cartel, and they’re not even being accused of such by the Chinese government.
There’s also the rather glaring problem that the Chinese government likes cartels. It likes them so much, it’s working to form new ones. Last week, China Aluminum was approved “to form a rare earth bloc amid the government push to consolidate”. Previously, Inner Mongolia Baotou was allowed to get larger – more monopolistic, you might say – by acquiring 12 other firms. Total price of the 12 acquisitions: zero.
There are similar efforts across the economy. Another place where China has said it wants fewer firms and less “disorderly competition” – more cartel-like behavior? You guessed it: autos.
A subtle explanation for the claim of 15+ monopolists in one sector is that investigators treat the auto industry as made up of small fragments, within which there are small monopolies. But it’s almost impossible that the industry could reasonably be divided to match the targeted foreign firms so precisely.
More troublesome for this view, sub-sector monopolies cannot be deemed a problem under Chinese law. This is because China has defined its most prominent companies exactly as sub-sector monopolies. In oil, CNPC, Sinopec, and CNOOC split the country up north, south, and offshore – they were created as regional monopolies. The power sector is split on regional and functional lines, regional monopoly status for distributors State Grid and Southern Power Grid and a government-subsidized power generation cartel of five firms. And so on.
So the “Anti-Monopoly Law” cannot actually be an anti-monopoly law. Nor can it be an anti-cartel law. It looks to have been mistranslated.
To promote a better understanding of the law amidst all these inquiries, an improved translation is urgently needed. It’s a bit tricky because there are multiple Chinese agencies enforcing the law in multiple ways. However, the common factor is that prices are viewed as unacceptably high by one of these authorities or another.
(This contrasts with rare earths, where prices are unacceptably low. It is possibly not a coincidence that foreign-invested firms pervade autos but not rare earths.)
To enhance transparency and open communication in bilateral relations the governing English translation of “Anti-Monopoly Law” should be changed to something which better captures China’s intent. The “Foreign Companies Lower Your Prices or Else Law” seems to accomplish that. The law’s text should probably be re-translated as well, starting with the title of the delegated authority provision, “My Implementing Agency Is Most Patriotic and Deserves To Survive Xi Jinping’s Reorganization.”
Before moving along with a bilateral investment treaty, whose value to the US economy depends in no small part on patriotic Chinese implementing agencies, American negotiators should consider the translations they are using. The plainly misleading “Anti-Monopoly Law” would be a good start. Beyond that, I’m starting to wonder about “decisive role for the market.”
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