Foreign acquisitions of Chinese companies will be subject to
stringent new checks intended to protect national economic security
under a new law passed yesterday.
After 13 years on the drawing board, the Anti-Monopoly Law
passed by the Standing Committee of the National People's Congress
(NPC), China's top legislature, will come into effect on August 1,
2008.
"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" it reads.
Foreign companies have begun to acquire major State-owned
enterprises or companies with famous brands, raising concerns about
economic security.
China already has a basic security check system for foreign
mergers and acquisitions.
Foreign investors should apply for approval from the Ministry of
Commerce (MOC) if their purchases of domestic companies affect
national economic security, take place in key sectors or lead to a
transfer of the operating rights of famous domestic brands,
according to a regulation issued by the MOC along with five other
government organs last year.
In December last year, the State Council, China's cabinet,
released a list of strategic sectors in which the State would
retain control.
The list included military-related manufacturing, power
production and grids, petroleum, gas and petrochemicals, telecom
manufacturing, coal, civil aviation and shipping.
The law also bans monopolistic arrangements, such as cartels and
other forms of collusion, and provides for the investigation and
prosecution of monopolistic practices, while protecting
monopolistic arrangements that promote innovation and technological
advancement.
It prohibits monopolies from using their dominant status in the
market to curb competition, fix prices, enforce package sales, and
refuse or enforce trade.
The law states that "an anti-monopoly commission will be set up
under the State Council to deal with anti-monopoly issues".
The law also stipulates that "government departments should not
take advantage of their power to curb competition", and prohibits
governments from appointing producers or suppliers for unit or
individual procurement.
Two major foreign chambers, the European Union Chamber of
Commerce in China and the American Chamber of Commerce in China
yesterday hailed the law as a positive step in the country's
evolution as a market-based economy.
"The European Chamber welcomes a more open economy and a level
playing field for business in China," Joerg Wuttke, president of
the trade body, said.
"Most important, curbing monopolistic behavior should allow
Chinese consumers to benefit from greater economic efficiency and
stronger protection against the abuse of market dominance."
The chairman of AmCham-China, James Zimmerman, described the law
as a "defining moment in the development of China's legal system,
which establishes a basic framework to build a fair, uniform and
national competition law system that benefits consumers by
recognizing and preserving the incentives to compete."
Four other laws or amendments passed by the NPC Standing
Committee yesterday are:
the Emergency Response Law;
the amendment to the Law on Animal Epidemic Prevention;
the Employment Promotion Law; and
the amendment to the Urban Real Estate Administration Law.
(China Daily August 31, 2007)