China threatens heavier fines after milk powder probe

SHANGHAI (REUTERS) - China threatened heavier fines against companies breaking the law on Thursday, a day after six milk powder producers were hit with a total of S$140 million in penalties for price fixing and anti-competitive behaviour.

Mr Xu Kunlin, head of the pricing unit at the National Development and Reform Commission (NDRC), said the milk powder makers had deleted emails and told staff to avoid leaving a paper trail when discussing prices with retailers.

"(These actions) are a clear example of knowingly violating the law," Mr Xu said in an interview with the People's Daily newspaper, the mouthpiece of the ruling Communist Party.

"From now on, if we discover firms knowingly breaking the law, then fines will be increasingly severe."

The NDRC fined six milk powder firms following a four-month investigation: Mead Johnson, Danone, New Zealand's Fonterra, Abbott Laboratories, Dutch dairy cooperative FrieslandCampina and Hong Kong-listed Biostime International Holdings.

All of the companies said they would not contest the penalties. Several also said they were committed to addressing the concerns raised by the government.

The NDRC is China's top economic planner and is also responsible for enforcing China's anti-trust rules on pricing.

It is carrying out separate pricing investigations into 60 foreign and local pharmaceutical firms as well as companies involved in gold trading. Those probes have yet to conclude.

Mr Xu said the milk powder companies broke China's five-year-old anti-monopoly law by effectively setting prices at which retailers could re-sell their products.

They used methods such as contracts, direct and covert fines and rebates, as well as controlling and cutting supply to get retailers to comply, he said.

"If a retailer didn't abide by the producer's pricing rules or went below the set lower price, then it would be penalised and sustain losses," Mr Xu said.

The NDRC did not give a lot of detail on Wednesday on what the companies did wrong, except to say they restricted competition, set curbs on minimum prices for distributors and used a variety of methods to disrupt market order.

The official Xinhua news agency said the fines were a record for China.

China's infant formula market is set to grow to US$25 billion (S$32 billion) by 2017 from US$12.4 billion in 2012, according to data from Euromonitor. Foreign brands account for about half of total sales and can sell for more than double the price of local formula.