China’s regulators are increasing their scrutiny of foreign companies in industries from baby formula to drugs as part of a drive to push down prices for domestic consumers. Foreign car makers are now the target of increased scrutiny by the Chinese government.
According to a Wednesday, August 14, 2013 media report, the National Development and Reform Commission (“NDRC”) recently asked the China Automobile Dealers Association (“CADA”) to collect data on the prices of foreign car makers.1 A CADA spokesman said that its probe would cover both imported cars and cars manufactured by Sino-foreign joint-venture factories in China.2
Other government officials have also indicated that the automobile industry may come under increased regulatory scrutiny. In an interview with CCTV on the same day, the head of NDRC’s Anti-monopoly Bureau stated that the Bureau was reviewing pricing information on various industries, including oil and gas, telecommunications, automobiles and banking.3 Also on the same day, the State Administration for Industry and Commerce (“SAIC”) said that it too would look at automobile dealers in China.4
Heightened regulatory scrutiny of the automobile industry has been accompanied by complaints in local news media regarding industry pricing practices. On August 17 and 18, CCTV 1 and 13 alleged that there were (1) large price differences for cars sold domestically as compared with those sold in other countries, and (2) mandatory sales and price-fixing activities for auto parts in China. These TV programs, which included interviews with industrial players, scholars, car dealers, and government officials, suggested that Chinese car consumers are paying excessive prices because of foreign manufacturers’ monopolistic practices. No domestic Chinese car makers were mentioned in these programs. Furthermore, China’s Xinhua News published an editorial in July highlighting the large price differences between foreign car brands sold in China versus the same brands sold in overseas markets.
According to the CADA spokesman, when and if the regulators decide to conduct official investigations, they are very likely to look into activities by foreign car makers such as resale price maintenance (setting a minimum sales price for cars with local dealers) and taking advantage of market dominance status by requiring sales of auto parts at a fixed price with local dealers.5
In China, the state anti-monopoly enforcement power rests with three government entities, each of which has a distinct focus. In general, the NDRC is in charge of price fixing investigations, SAIC is responsible for non-price conduct, and the Ministry of Commerce (“MOFCOM”) is responsible for reviewing mergers and acquisitions. In practice, cross-department enforcement initiatives may not be unusual. In this case, CADA will report its findings to NDRC, SAIC and MOFCOM,6 which will form the basis for their collective decision-making process.
In sum, Chinese regulators and official media outlets have recently signaled concerns with certain pricing practices of foreign car makers. As a result, these firms, and their local dealers, need to be prepared for investigations by one or more of the Anti-Monopoly Law agencies and pressure to lower prices.
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This article was originally published by Bingham McCutchen LLP.