Business | Investment
Channel Sponsor
Air is clearing but anxiety remains
China and India are now so integral to the global financial system that the impact of looming changes to antitrust legislation in both countries is sure to be felt across the world.
- By Sundeep Tucker and Patti Waldmeir, Financial Times
- Published: 00:04 August 2, 2008
China and India are now so integral to the global financial system that the impact of looming changes to antitrust legislation in both countries is sure to be felt across the world.
China started implementing from Friday its inaugural anti-monopoly laws, nearly 15 years after they were first proposed.
India, Asia's other giant, is scheduled to implement tough new antitrust laws in the coming months. At a stroke, China and India will rival the US and the European Union as key global centres for competition law.
"It is widely expected that China will soon be the third main jurisdiction for competition law, together with the EU and US," says Kirstie Nicholson of law firm Lovells in Shanghai.
Turning a blind eye to Beijing's and New Delhi's views on antitrust issues will soon no longer be possible. Companies will have to ensure they comply with the new anti-monopoly laws or risk stiff penalties.
In India's case, individuals face criminal prosecutions and possible jail sentences. But as implementation looms, there is mounting anxiety in business and legal circles that the new laws could have unintended adverse consequences, including delaying the completion of global mergers and acquisitions.
Erik Soderlind, the new head of Linklaters' competition practice in Asia, says: "The competition landscape in Asia and beyond will change markedly once the new regimes are in place in China and India. But what impact the new regulations have on business and deal-making will depend a lot on how they are implemented."
The new regimes in each country were developed after lengthy consultation and are broadly based on the EU model, spanning the three pillars of anti-competitive agreements, abuse of dominance and merger control. Their adoption has been driven by a mixture of motives. In China, policymakers were keen to demonstrate that the socialist market economy has laws to protect consumers.
Keen for recognition
India, too, is keen to earn global recognition as a heavyweight economy that is underpinned by rules long adopted in the west. But Indian agencies have become noticeably more zealous in championing consumer protection issues under the existing, weaker antitrust regime. They have recently targeted several sectors suspected of cartelisation, namely telecom, cement, airlines, tyre-making and shipping.
China's new anti-monopoly law, which takes effect on August 1, could be a milestone in the creation of an economy based on law - or it could merely prove a potent new tool of Beijing-style protectionism. Multinationals are watching closely to see how the law will be enforced, worried that it could be used against them and not against their Chinese rivals.
It is unclear exactly what transactions, companies and behaviour will be covered by the Chinese rules, even a year after their legislative passage. Legal experts and big foreign companies had hoped that detailed implementing regulations would be published before the August 1 deadline, but it now seems likely that only limited guidance will be available.
"It's no more vague than the Treaty of Rome," says Peter Corne of the law firm Eversheds, chairman of the legal working group of the European Union Chamber of Commerce in Shanghai, noting that it will take time to build up a body of regulations and interpretations to flesh out what amounts to only a legal skeleton of anti-trust aspirations.
For many multinationals, the new rules will be an improvement on the status quo in terms of clarity and predictability. The enforcement of new laws in areas such as price-fixing and monopolistic behaviour could also help force open domestic markets to outside competition.
In China, member companies of trade associations still commonly meet to agree prices and business practices - conduct specifically prohibited under the new regime.
Warning
Yet lawyers warn against viewing the antitrust laws as a panacea. Alison Lindsay of Clifford Chance in Hong Kong says: "The greater certainty which the new laws should bring to this field will not, in itself, create significant business opportunities for foreign investors. Greater opportunities may come from any parallel process of liberalisation in restricted sectors."
India and China each restrict foreign investment in sectors ranging from financial services to telecoms. But many fear an immediate adverse impact on mergers and acquisitions - even for deals that take place largely outside China or India.
Detailed M&A regulations have yet to be officially released in China but, according to leaked reports, companies will have to file for antitrust approval where each has turnover of 400 million yuan ($60 million) in China as well as total global turnover of 10 billion yuan or combined turnover in China of two billion yuan.
It is a similar story in India. Revised draft regulations published this month, which even experienced lawyers regard as fiendishly complex, set out thresholds based on global and domestic turnover which, if met, will make merger filings mandatory.
The guidance suggests that for deals involving a large global company where two of the parties to the proposed tie-up have assets of $50 million in India or annual Indian turnover of $150 million, the acquirer will have to file for antitrust approval.
Lawyers predict that big companies anywhere in the world - even with limited operations in China or India - will have to wait for permission in Beijing and New Delhi before they can complete large global deals.
Merger filings in China could be merely a formality; or they could trigger significant delays of up to six months before approval is granted - or refused.
Unlike in India, it is unclear how the competition authorities in China will treat deals involving private equity or joint ventures.
Big question
Another big question is whether China's domestic companies will face equal scrutiny. Up to now, unlike foreign companies, they have had no obligation to file for merger approval. The new law will apply to Chinese companies but there is a loophole for state-owned enterprises, which still dominate the economy. If Beijing wants to exempt them, it probably can.
A merger filing in India will trigger a waiting period of up to 210 days, compared with the typical 30-60 days in the EU and US. India's business leaders, scarred by years of dealing with India's bureaucracy, predict that the competition authority will lack the expertise or drive to make early decisions - especially in complex cases.
Shahani says: "If these draconian powers had been in place two years ago then deals such as Tata/Corus would never have taken place. Commerce doesn't wait 210 days. Tata would have lost that deal. The Indian bureaucracy is far too slow."
Enforcement is also a major concern. Turf wars in Beijing have prevented the creation of a designated specialist agency and, until they are settled, the Ministry of Commerce, the State Administration for Industry and Commerce (SAIC) and the National Development and Reform Commission (NDRC) will share responsibility for enforcement.
In a note to clients, Lovells this month warned that business was "at the mercy of an unpredictable three-headed dragon".
India has no such dragon, having set up the Competition Commission of India and, more recently, the Competition Appellate Tribunal to hear appeals against the orders of the CCI. But business fears that neither body will offer salaries competitive enough to attract the sharpest brains and that both institutions will lack experience in dealing with the likely caseloads.
In the final reckoning, however, China and India's efforts to make their respective forms of capitalism more responsive to the needs of citizens will depend on creating a culture of competitiveness - something no law can do on its own."
Share this article
Popular in Business
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
Business Editor's choice
-
Media baron Murdoch cries foul
Murdoch's suggestion of content theft infuriates digital evangelists
-
Jobs vital to global recovery
Higher unemployment reduces purchasing power and revenues
-
Abulhoul Aviation to begin operations
New charter company will use Cessna 206 Station Air to transport tourists
