Antitrust Regulators On Defensive, Press Microsoft

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 |  Includes: MSFT
by: Doug Young

Officials at the 2 main regulators probing foreign firms for anti-competitive behavior are turning up their public relations machine to defend their actions, even as they also turn up the pressure on Microsoft (Nasdaq: MSFT) in one of the highest profile investigations. I remarked last week how unusual it was when the secretive State Administration for Industry and Commerce (SAIC) held a rare press conference to defend a series of probes that have targeted Microsoft, along with global smartphone chip giant Qualcomm (Nasdaq: QCOM) and many major auto makers. (previous post) Now the equally secretive National Development and Reform Commission (NDRC), the other antitrust regulator, is launching its own initiative by granting an unprecedented newspaper interview to discuss the matter.

It's obvious why Xu Kunlin, the NDRC's director of price supervision, chose the English-language China Daily for his interview, since the newspaper is directly targeted at foreigners, both in China and abroad. Many of those foreigners are troubled by the growing perception that China is unfairly targeting foreign companies in a recent series of anti-monopoly probes, some of which have ended in large penalties and pressure for other major corrective behavior.

The new interview with Xu Kunlin is mostly interesting because it happened at all, reflecting China's concerns about the anti-foreign perceptions and also concerns that western governments may file a discrimination complaint at the World Trade Organization. But that said, it's still worth taking a look at what Xu actually said, along with separate reports that quote the NDRC giving Microsoft an ultimatum to stop being evasive and provide information the agency is seeking.

Xu's argument is actually somewhat logical, saying that China wants to foster more competition in its economy following the roll-out of an anti-monopoly law 6 years ago. (English article) That broader goal is consistent with Beijing's recent efforts in other sectors like banking, energy and telecoms, many of which are now being opened to private competition after years of being monopolized by big state-run companies.

What's less convincing is Xu's argument that the spate of probes over the last year aren't hugely biased towards big foreign firms. Xu points out that state-run firms from the domestic liquor industry were also targeted, and that one or two of the companies penalized last year in a probe of the powdered milk industry was also Chinese. The NDRC also previously investigated 2 of the nation's 3 telcos, China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU), for monopolistic practices in the broadband Internet sector.

But in all of those cases, the fines and other penalties were largely nominal. What's more, with the exception of the 2 telcos, no other major state-run firms that operate government-granted monopolies have been investigated. The reason for lack of such investigations is obvious, as such companies are politically well connected. Investigating them would also be somewhat self-defeating, since Beijing would only be punishing itself by fining those firms.

Meantime, the other monopoly investigator, the SAIC, is also fighting a battle on another front, as evidenced by its growing frustration at Microsoft in its probe of the US software giant. According to the latest reports, the SAIC has given Microsoft 20 days to provide information it has previously requested about sales practices for its Windows operating system, along with its Office suite of products, its Internet Explorer, and its media player. (Chinese article)

In this instance, I actually have to sympathize a bit with the regulator. Microsoft and other major firms are notoriously uncooperative and evasive when faced with such probes, and the US and Europe faced similar obstacles when conducting their own major investigations in the past. But if China wants to play by international rules, it will need to get used to such resistance, and also to change its game plan to appear more even-handed in choosing targets for anti-trust probes.

Bottom line: China's rare public defense of its wave of antitrust probes is unlikely to satisfy critics who say the moves are unfairly biased towards foreign firms.

Disclosure: Author has holdings in QCOM.