Violating Antitrust Laws in China

We so often hear of the Chinese export market. Following a controversial ruling in China on antitrust laws, Tom Mitchell in the Financial Times provides an interesting look into the inner workings of a rather foreign-dominated industry within China: the automobile industry. Mitchell focuses on the investigations into some foreign automobile companies such as BMW, Audi, and Honda. And he sheds light on their questionable violations of Chinese antitrust laws—violations of fixing the prices of spare parts and those of repair and maintenance services.

The following excerpt from the article does a good job of capturing the main disputes related to these investigations and charges. Of the National Development and Reform Commission (NDRC), China’s economic planners, Mitchell writes:

The question at the heart of the NDRC’s investigations is whether goods are expensive because of illegal pricing practices or because of high consumer demand.

“The NDRC is trying to control things it shouldn’t control,” says a lawyer who defends multinationals caught up in Chinese competition investigations. “The communist era has ended. Companies are just responding to the market.”

In other words, the NDRC would like to find out whether or not these high prices reflect inflated consumer demand or an illegal price increase. In the latter case, the automobile industries would certainly be guilty, but in the former the price increase would be explained simply by the laws of supply and demand.

Secondly, the negative tone and conflation of the NDRC’s attempted regulations with Communist practices seem to suggest not only that the cause of the price increase is high consumer demand but also that the NDRC is taking on a much larger role than is warranted. Perhaps the latter is true, given its overall role in economic planning. But in this particular case, this complaint is perhaps a bit shocking given that even in the traditionally anti-Communist United States, we have many regulatory agencies that deal specifically with antitrust law issues.

Regardless of whether these accusations are grounded, it is comforting to see that there are still avid defenders of economic principles. Granted, there may be some foul play in this case, but when it’s just economics behind the changes in an industry, it’s best for regulatory agencies to step aside and leave it to supply and demand.