Taming the Chinese Leviathan: Is Antitrust Regulation a False Hope?

Abstract

To many it seems anomalous that a communist regime like China would adopt an antitrust law. It seems even more bizarre that China would apply its antitrust provisions to regulate its state-owned enterprises (SOEs). This simplistic view, however, fails to reflect the complexity of the Chinese political economy today. To provide a more nuanced understanding of how China’s Anti-Monopoly Law (AML) could be applied to SOEs, this Article analyzes the factors bearing on the demand and supply of antitrust regulation of SOEs. Demand to regulate SOEs arises in both competitive and regulated sectors. After several rounds of market reform, Chinese SOEs now enjoy significant operational autonomy. Although competitive SOEs lack monopoly power, local protectionism can foster conducive market conditions for cartels to arise at the regional level. Within the regulated sectors, the limited competition orchestrated by the Chinese government creates competitive tension among SOEs, leading powerful SOEs to demand regulation of their state-owned rivals. On the supply side, the main supplier of antitrust enforcement has so far been the administrative enforcement agencies. Contrary to popular perception, these agencies are motivated to bring cases against SOEs because it helps them to expand their policy control in regulated sectors. But their efforts are largely unobservable due to opacity of enforcement and a near absence of judicial supervision. At the same time, they face constraints imposed by the hierarchical bureaucracy. As a consequence, the main battle these agencies face in tackling SOE cases is fought within the bureaucratic hierarchy rather than in courts. As the Chinese government continues to deepen market reform and grants more autonomy to SOEs, demand for antitrust regulation will increase. However, without effective judicial oversight, antitrust regulation of SOEs is likely to be arbitrary and opportunistic. This Article therefore predicts that China is unlikely to have an effective antitrust policy to regulate SOEs.