Effects of China anti-trust purge yet to trickle down

Effects of China anti-trust purge yet to trickle down
Mechanics inspecting a car in an Audi workshop in Shanghai. The German carmaker was punished for anti-trust practices.

When six foreign dairy firms were fined last year after a high-profile anti-monopoly probe, Ms Wei Yanqing hoped to spend less than the 1,000 yuan (S$203) she forked out for milk powder every month.

But prices remained sky-high at more than 200 yuan a tin for the American brand she fed her one-year-old son. Ms Wei, 31, who works in the insurance industry, said: "Even if prices did come down, the drop was insignificant - just a few yuan. We still pay much higher prices here than those overseas."

Such investigations are meant to stamp out collusion or monopolistic practices that force consumers to pay excessive prices.

German carmaker Daimler, United States tech giant Microsoft and French food firm Danone are among those that have been investigated for anti-trust practices in the past year.

Local firms have also been hit: Five jewellery stores and a trade association in Shanghai were fined last August for price-fixing.

Some firms reportedly slashed prices after being investigated but consumers are not reaping the benefits yet. For instance, dairy firms like Nestle pledged to cut its milk powder prices by up to 20 per cent in July last year but local media reports said changes to the market have not been "substantive". A year later, Chinese consumers are still paying as much as three times what Europeans pay for certain brands of imported milk powder, said the China Economic Times. Part of the reason is that only products at the higher end of the range have been subject to price cuts, resulting in little benefit to the average Chinese consumer, said experts.

Sometimes, the authorities have been slow to take action. Probes in the car industry began at the end of 2011 but it was only earlier this month that foreign carmakers like Audi were punished.

China also levied a record fine of more than 1.2 billion yuan on 10 Japanese car parts companies for fixing prices. In response, Audi said it would cut car-parts prices even as luxury carmaker Jaguar Land Rover cut prices of three models recently.

This, however, is cold comfort for Beijing businessman Du Duan. The 40-year-old chalked up a 4,900 yuan bill that included a new 3,500 yuan rear bumper when he damaged his Audi A1 car in an accident last month.

Though the bill was paid through his insurance policy, Mr Du said the cost was too high and was worried that it might result in an increase in his insurance premiums. "I hope that as the prices of spare parts drop, insurance premiums will fall too as monopolies are broken up and more competition emerges," he added.

Experts said the anti-monopoly law should benefit consumers because it levels the playing field.

"The law allows the most efficient firms to deliver goods or services at the lowest cost and so the trend is for prices to come down," said competition law specialist Deborah Healey from the University of New South Wales in Australia.

But if a firm is operating upstream, pricing can depend on supply-chain costs and not every company will pass on savings to consumers, said Mr Chester Toh, an anti-trust partner with Singapore law firm Rajah & Tann.

In a follow-up move in February, China's top price regulator investigated several milk powder manufacturers and pledged to continue ensuring monopolistic practices do not resurface.

Beijing-based research firm GaveKal Dragonomics analyst Arthur Kroeber said that in China, goods are not always pricier because of monopolies. "The main culprits are taxation, local protectionism, logistics inefficiencies and quality or safety anxieties that give high-quality foreign brands immense pricing power."

While sceptical, Chinese consumers support the anti-trust law and are keen to see it broadened to industries that can bring benefits to a wider group of people.

"The government should investigate anti-trust behaviour in the oil sector because it produces the raw material for many other sectors and will have an impact on prices," said Mr Tan Qingning, 40, who works in the electronics industry.


This article was first published on August 25, 2014.
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