China must not lose investors' trust

Foreign car and car-part makers are the latest firms to be hit in China's clampdown on anti-competitive practices in various industries. This week, Daimler was found guilty of infringing the six-year-old anti-monopoly law while 12 Japanese car-part makers were fined a total of US$201.8 million (S$252 million) for the same offence, even as American tech firms Microsoft and Qualcomm have come under scrutiny. Antitrust probes of multinationals in recent months have sparked concern that China is turning protectionist to nurture indigenous innovation and firms.

Hence the American Chamber of Commerce wrote in April to the US state and treasury secretaries to demand that Washington get tough with Beijing for using its antitrust law to "advance industrial policies". The Europeans are also up in arms, with their chamber of commerce alleging last week that the authorities have spared some domestic firms from scrutiny. What is also worrying is the charge that "administrative intimidation tactics" are being used to get firms to accept punishments and remedies without full hearings.

To be fair to the Chinese, many of the probes, from cars to pharmaceuticals, appear aimed at bringing down prices. In the Daimler case, an antitrust official called it a "vertical monopoly", with the carmaker using its leading position to control prices of its spare parts and repair and maintenance services. Indeed, several carmakers, including BMW, Honda and Chrysler, have lowered prices of their car parts as a result of the investigations. The motive for cracking down on tech firms is less clear. Microsoft is being probed for problems of compatibility, bundling and document verification in its products.

China denies gunning for foreign firms, naming local ones nabbed, such as China Unicom. With limited resources, it targets a few industries at a time and, with foreign luxury makes dominant in the car industry, they are naturally scrutinised. Whether foreign firms are unfairly targeted will be clearer when antitrust officials move to sectors dominated by local firms.

Stricter enforcement of the law shows that Chinese antitrust agencies, while new at it, are more confident of their capabilities. But it is also part of China's restructuring of its economy to be more consumption-driven, as seen by its targeting of the consumable goods sector. Enforcement is expected to continue and be more comprehensive. What foreign firms can do is to ensure that they comply with the law and be more proactive in cooperating with regulators. But the Chinese government also needs to allay investors' fears by being less heavy-handed and more transparent in enforcing the law, and showing that foreign firms are treated fairly.