Administrative monopoly and China's new Anti-Monopoly Law: lessons from Europe's state aid doctrine

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Date: July 2010
From: Washington University Law Review(Vol. 87, Issue 4)
Publisher: Washington University, School of Law
Document Type: Article
Length: 11,355 words

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INTRODUCTION

On August 1, 2008, China's Anti-Monopoly Law (AML), its first comprehensive anti-monopoly legislation, came into effect. (1) Observers guardedly hope the AML will serve as a crucial legal foundation for the sustained development of China's thriving market economy. (2) Much as American antitrust law is "the Magna Carta of [United States] free enterprise" (3) and European Community competition law helped provide the economic basis for the ongoing political unification of Europe, (4) the AML may similarly cement the role of the free market in post-reform China. (5)

One of the most exciting parts of the AML is Chapter V, "Abuse of Administrative Power to Eliminate or Restrict Competition." (6) This chapter is aimed at preventing government agencies and organs from using their power to interfere in competition, particularly regarding interprovincial and interregional business. (7) Economists typically call such government interference an "administrative monopoly." (8) Given China's history of state presence in nearly every facet of the economy, (9) Chapter V of the AML has the potential to bring monumental changes to the nature of the Chinese economy and even political system. Yet as with any fundamental economic transformation, the way ahead is unclear. China's judicial system is improving, but is still inexperienced in competition law, (10) and drawing a definitive line between proper state economic intervention and illegal state interference is inherently difficult.

This Note will look to the European Community doctrine of State Aid (11) to suggest a path for implementation of the AML's administrative monopoly provisions. Some of the suggestions are very unlikely to be implemented given China's current economic and political situation, (12) but are offered for consideration of China's long-term legal and economic development. Part I will discuss economic and political consequences of administrative monopolies, followed by a focus on administrative monopolies in China specifically. Part II then addresses the history and political context of competition law in China, followed by a history and outline of China's new AML. Part Ill is a history and outline of European competition law and its enforcement, with a focus on Europe's State Aid doctrine. (13) Part IV compares the situations of Europe and China and ultimately suggests areas where European competition law could instruct implementation of the AML and its enforcement mechanisms.

I. ADMINISTRATIVE MONOPOLIES

A. The Problem of Administrative Monopolies Generally

Possibly without exception, every country with a functioning government has administrative monopolies, (14) ranging from local trash pickup to a national electric grid. The problem of administrative monopolies ("abuse of administrative power," to use the language of the AML (15) arises when government uses its power to control markets through legislation, regulations, or use of administrative organs to seek above-market rents. (16) Economic theory generally holds that administrative monopolies, like other monopolies, hamper overall social welfare with increased prices, reduced output, and reduced competition. (17) In addition, administrative monopolies are often geographically protectionist, disrupting trade and potentially weakening the political unity of the broader unit (the nation, in the case of China or the United States,...

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Gale Document Number: GALE|A238426222