(by Andreas Stephan) On 4 January 2013, China’s (NDRC) announced that CNY 353 million (around £35m) would be of liquid crystal display (LCD) panels for price fixing during 2001-2006. Never before had China imposed a cartel fine on foreign firms. Indeed this first instance of Chinese international cartel enforcement involved both settlements and a leniency application from a revealing firm in return for immunity. But should China’s venture into international cartel enforcement be treated as a welcome development?

Deterrence

In principle, China’s pursuit of international cartels is hugely significant. It is hard to find a multinational firm without a presence in China, or at least without ambitions to cut a slice from one of the fastest growing economies in the world. China also happens to be the world’s , ending the US’s 110 year lead in 2011. This means Chinese factories are more likely to be victims of global price fixing, as international cartels are characterised disproportionately by markets for raw materials and upstream manufacturing products.

Although the fines in the LCD case are low by EU and US standards (where fines totalled £2.37 billion), the NDRC are keenly pointing out that the present infringement came under old pricing laws. Conduct occurring from 2008 onwards will face significantly higher fines under China’s new Anti-Monopoly law (up to 10% of turnover). So China has the potential to become another powerhouse of international cartel enforcement, if only by mirroring investigations by the EU and US to begin with. This can only be bad news for multinationals involved in price fixing.

Compliance

Chinese enforcement does, however, create a few difficulties for multinational firms. Those seeking to ensure compliance with Chinese antitrust law have to negotiate a multifaceted and complicated set of laws and procedures. China’s three sets of competition law related legislation contain substantive provisions that have been criticised for being vague and inconsistent in places. This is compounded by the existence of three relevant government agencies, each with their own enforcement powers. As a result, there are a number of problems, including the possibility of inconsistent outcomes, uncertainty , and excessive expenditure by firms seeking legal and compliance advice.

Transition to free market

The LCD case marks a hugely significant development in China’s transition towards a free market economy. Although the adoption of Antitrust laws was in itself a milestone, the extent to which these laws would actually be enforced was unclear at the time. was largely taken by local authorities within China, with corrective measures often being accepted in lieu of a fine. But increasingly there are instances of fines imposed for . Despite the careful language and rhetoric employed by Chinese officials when discussing matters of capitalism, the willingness to employ antitrust laws signals a growing acceptance of market forces and the economic autonomy of those buying, producing and selling products. It is interesting to note that the NDRC enforcement action against the LCD manufacturers came at the . The difficulty the Chinese government faces is the ability to continue promoting economic freedom in pursuit of the benefits this brings, while continuing to resist greater levels of political and individual freedom. In the longer term, it will be interesting to see how successful they are at reconciling this disparity.

Realpolitik

A sceptical evaluation of China’s anti cartel enforcement might suggest that, international case selection will be politically motivated along national lines, influenced by international relations and disputes. One might also raise concerns about how selective internal enforcement will be, about weak Chinese institutions, the favourable treatment of Chinese firms, the scope for corruption and the issues of legal uncertainty outlined above.

However, before pursuing such criticisms, we in the EU and US need to be realistic about the limitations of our own enforcement regimes. Case selection everywhere is influenced to some extent by political realities. In addition, we are not strangers to contradictions. The US treats domestic price fixing as a criminal offence, but exempts it in relation to foreign markets via export cartels. The EU talks tough on dominance, but all its high profile enforcement has been against US firms.

In my view, Chinese cartel enforcement is a very welcome development and one that could have long term implications beyond the realms of competition policy.