Foreign direct investment, trade, and China's competition laws

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Date: Spring 2009
Publisher: University of Denver
Document Type: Article
Length: 15,003 words
Lexile Measure: 1710L

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"Whether a cat is black or white makes no difference. As long as it catches mice, it is a good cat." Deng Xiaoping


The People's Republic of China, or the PRC, known more widely simply as China, holds nearly one-sixth of the world's population. It possesses one of the fastest growing economies in the world. In 2007, China experienced a growth rate of 11.4%. (1) As a result of its strong economy and growing population, China has the ability to greatly influence the global economy. It is not surprising, therefore, that the newly adopted Chinese Anti-Monopoly Law, or AML, has been the subject of much interest, discussion, and debate. The legislation, which became effective August 1, 2008, has a variety of purposes: to safeguard competition in China; to protect the Chinese economy against monopolistic conduct; to improve economic efficiency; and, perhaps most importantly from the Chinese perspective, to promote the healthy development of its "socialist market economy." (2)

Minister of the National Development and Reform Commission, Ma Kai, has underscored the contextual importance of China's transformation and transition in the development of the AML. The Minister noted on July 12, 2005, that China had essentially completed the transition to a socialist market economy from a highly centralized planned economy "after 26 years' endeavor on reform." (3) Minister Ma asserted that China had successfully established the fundamental basis of an economic system in which public ownership of the economy plays the "leading role and co-exists and shares opportunities with the economy in various other ownerships." (4) Indeed, by the end of 2004, more than fifty percent of the nearly 3,000 state-owned or state-controlled large major enterprises had turned into stock-sharing (so-called joint stock) companies. (5) As an indication of the pervasiveness of market forces in the "new Chinese market," the private sector now provides "four-fifths of new job opportunities and generate[s] one-third of Chinese GDP." (6) In this context, the drive for both foreign direct investment and foreign trade--key aspects of the Chinese economy that would rely heavily on the proper functioning of a truly competitive market--occupy unique positions of importance.

The Chinese AML was drafted within the context of three principal international concerns relating to the restrictive or monopolistic nature of competition within the Chinese market: regional monopolies, enjoying local or regional protection; certain sectoral monopolies by established Chinese firms and state-owned enterprises (SOEs), termed administrative monopolies; and the perception of significant abuse of their dominant positions by some multinationals operating within the Chinese market. (7)

While the legislation represents yet another significant step towards China's transition to a full market economy and away from one that is centrally planned, (8) many commentators have expressed concern over the vague and inefficient mechanics of the proposed legislation. (9) One specific concern is that China will reserve to itself the ability to review any transaction affecting its "national security," which may provide China with unreasonable control over multinationals operating in the Chinese market.

This article will analyze several of the...

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Gale Document Number: GALE|A201086007