Competition Policy and Law in China, Hong Kong and Taiwan

By Kennedy, Scott | The China Journal, January 2007 | Go to article overview

Competition Policy and Law in China, Hong Kong and Taiwan


Kennedy, Scott, The China Journal


Competition Policy and Law in China, Hong Kong and Taiwan, by Mark Williams. Cambridge: Cambridge University Press, 2005. xx + 471 pp. £60.00/US$110.00 (hardcover).

It is widely accepted by scholars and officials that vibrant competition among companies is central to a prosperous economy. Various competition policies have been adopted by over 80 countries and involve regulating three kinds of activities which may reduce competition: abuse of dominant position by a monopolist or oligopolists, restraints of trade arranged by several companies (such as a cartel), and mergers and acquisitions which effectively eliminate competition. Such behaviors typically lead to exorbitant prices, reduced choice for consumers and mis-allocation of resources, thereby retarding growth and raising inequality. Legal scholar Mark Williams offers the first comprehensive examination of competition regulation in China, Hong Kong and Taiwan. Although his study contains much useful information, it has major weaknesses as a piece of social science.

The book's structure is straightforward. Following an overview of competition policy theory and the experiences of other countries, including Mexico and Russia, Williams examines the evolution of competition regulation in mainland China (2 chapters), Hong Kong (3 chapters) and Taiwan (1 chapter). Given China's incomplete transition from a socialist system with extensive government intervention, it is not surprising that Williams finds administrative monopolies to be the most severe obstacle to open competition there. As others have found, Beijing has protected national monopolies or duopolies in certain key sectors, and local governments regularly try to promote their own enterprises over those from elsewhere. State-sanctioned cartels have also been common, though they have collapsed. Most useful is Williams' discussion of the drafting of an anti-monopoly law begun in the mid-1990s, whose history reflects the complexities of lawmaking in China. He shows how each subsequent draft has become more precise and comprehensive, but its passage has been stalled by opposition from planning agencies, state-owned industry and local governments.

More unexpected is his portrayal of Hong Kong, at least given the Heritage Foundation's widely publicized ranking of Hong Kong as the freest economy in the world. Williams details how a small number of family-owned conglomerates dominate many sectors of the economy, including supermarkets, housing, natural gas, oil, electricity, shipping terminals, laundry services and driving schools. By exploiting their monopolies, organizing cartels and buying up competitors, these firms have raked in excessive profits and Hong Kong's consumers have suffered from a higher cost of living. The lack of a strong government agency to police competition and the existence of only a few sector-specific regulations is intentional, due in part to the libertarian, laissez-faire ideology of the civil service and in part to pressure by the local business community to maintain their enviable position.

The star of the show, by contrast, is the "third China", Taiwan, which since 1992 has had a comprehensive competition regime. Taiwan has an independent Fair Trade Commission modeled mostly on the German system, with extensive investigative and punishment powers. Although some complain that the FTC has only taken on small fry, Williams sees the glass as three-quarters full, as most economic sectors, from banking to broadcasting, have been liberalized and collusive behavior by firms has been publicized and attacked.

Although the comparison of competition regimes is worthwhile, the study falters on a number of important grounds. First is the characterization of the three regions' competition regimes. Although China and Hong Kong's competition systems are much less developed than Taiwan's, the situation is not entirely dire. China has been making significant progress on its regulatory framework; and even without such rules, in many industries competitive pricing is the norm and local protectionism is gradually giving way to nationally integrated markets.

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