U.S. Firms Wary About China's Free-Market Claims


The Chairman
Apr 17, 2009
U.S. Firms Wary About China's Free-Market Claims

When Beijing recently sent a top economic planner to the U.S. to spread word of China's ambitious new reforms, the free market got a big, amorous hug.

"The market will play the decisive role in resource allocation," promised Zheng Xinli,
who helped draft the much-heralded economic reforms. Competition—not the dead hand of government—"will unleash productivity" and will decide which companies live and which die.

But tell that to Microsoft, whose offices in China were raided by the government this week. The company joins a growing list of U.S. tech firms accused by the Chinese of violating antitrust laws. U.S. business advocates see the dead hand at work—one keen on promoting Chinese industry at the expense of foreign companies.

"It's more Chinese industrial policy—the latest chapter," says an American executive involved in the conflict.

It's true that many in China aspire to a new market-driven future now that the old export-led economy is flagging. But there are limits, particularly when it comes to protecting sectors that the Chinese consider critical. Like technology.

Microsoft got ensnared in China's anti-monopoly law, a relatively new regulatory tool. Details of the case aren't known, but the State Administration for Industry & Commerce said Microsoft didn't disclose required information about security features and how it ties its software products together. Microsoft says it has complied with Chinese laws. A number of other U.S. tech companies, including Qualcomm and InterDigital, as well as multinationals in other industries and from other nations, have also had run-ins with the anti-monopoly law.

China, to be sure, is like any nation that wants to protect consumers from unfair business practices. Its anti-monopoly law has already been used to break up price fixing by domestic Chinese companies in the food, auto and insurance businesses. Regulators have also approved mergers that they didn't deem anticompetitive. Lawyers say China, to its credit, is moving carefully with the law, often observing precedent set in other nations.

The U.S. itself found that as its economy grew more complex it needed the Sherman Antitrust Act of 1890 to corral the avaricious and punish the rapacious.

But the difference in China is that the competitor to U.S. companies is often a government-owned enterprise, and the government makes and enforces the law. U.S. companies have complained that they sometimes first hear about an antitrust action against them in the Chinese media. Evidence and due process can be afterthoughts.

In other instances, regulators don't make clear what the company did wrong. A vague threat is held over a company until it gives ground, perhaps agreeing to share technology or to restrict the price it charges for its product. And the courts? They can adjudicate complaints. But they are government controlled too.

The anti-monopoly law shouldn't be seen in isolation. It's one in a long string of measures China has employed to protect and expand its industries. China has used subsidies and government procurement programs to favor or punish companies. It has required foreign firms to develop new technology within China or transfer tech to China as a prerequisite for access to the market. It has used standards-setting for products as a way to exclude worrisome competitors.

"Given that China is still at the catch-up and overtake stage, industrial policy needs to play its critical role in China's economic development," Xu Kunlin, the head of one of the government offices that oversee monopoly law, said last year.

The Ministry of Commerce didn't return calls Thursday asking for comment about the antimonopoly law.

The World Trade Organization, the normal arbiter of trade complaints, doesn't oversee rules governing antitrust decisions so it has no jurisdiction.

Instead, business groups such as the Chamber of Commerce and the U.S.-China Business Council have complained to the U.S. Trade Representative, the Justice Department and the Federal Trade Commission. Last month, the U.S. raised the antimonopoly law in its semiannual "strategic dialogue" with Beijing. The result was a joint statement noting, among other things, the importance of due process. The statement is nonbinding.

Absent any stronger action by foreign governments, China will continue to win these battles. It wants a leg up in its bid to become a technology giant in its own right. And American companies will continue to find ways to accommodate Beijing. They want to retain access to the Chinese market.

As for Mr. Zheng and China's big plans for a free-market economy? Well, China never promised it would be that free.

U.S. Firms Aren't Buying China's Free-Market Claims - WSJ
Are the Chinese playing foul or are Americans protesting too much?

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