Assertive Beijing Probes Tetra Pak

Beijing latest probe targets Tetra Pak

It’s a new week, which increasingly seems to mean a new investigation against a foreign firm for anti-competitive behavior. Last week it was foreign milk powder and drug makers that came under Beijing’s scrutiny, and now we’re getting word that global packaging giant Tetra Pak is also being probed for potential abuse of its market dominance in China.

Some might say the recent flurry of investigations against foreign firms may be purely coincidental, and that China is always looking out for anti-competitive behavior in its home market. But I suspect this series of stories is deliberately being leaked by various government ministries in a bid to send a message to foreign companies. In effect, Beijing is telling these companies that they can sell their products in China, but that they need to do so responsibly. The message is especially important now as China tries to rebalance its economy to put more focus on domestic consumption rather than growth fueled by exports and foreign investment.

All that said, let’s take a closer look at the latest news that has domestic media reporting the State Administration For Industry And Commerce (SAIC) recently launching a probe against Sweden-based Tetra Pak. (English article) Tetra Pak confirmed that government officials had requested information about its business in China several weeks ago, but didn’t provide more information. Meantime, SAIC didn’t comment on the Chinese media report, which cited unnamed sources.

News of this latest probe comes after media reported last week that 5 foreign powdered milk makers were being investigated for their high prices, following a series of food safety scandals that has led most Chinese consumers to distrust domestic milk powder brands. (previous post) Just days later, other reports said China was investigating about 30 drug makers over their pricing policies. (previous post)

Interestingly, the probes are being conducted by several government department. While Tetra Pak is being investigated by the SAIC, the 2 cases involving milk powder and drugs are being handled by the National Development and Reform Commission (NDRC), China’s powerful state planner. The Ministry of Commerce has also become quite aggressive over the past 12 months in its review of a wide range of global M&A deals, many of which involve multinationals that do big business in China.

My major conclusion is that central leaders in Beijing have probably quietly started to instruct regulators that they must be increasingly vigilant of maintaining order in the domestic market during the economic rebalancing. That could often mean paying close attention to big multinationals that could abuse their greater experience and deeper resources to undermine competition and threaten their younger domestic Chinese rivals.

So, what do I think of all this? In all fairness, I think that China does need to be a bit more assertive in controlling these foreign giants in its domestic market. Experience has shown that these companies are easily capable of engaging in anti-competitive behavior if no one stops them, which is why regulators in western markets are very careful to watch their own markets for signs of such negative behavior.

Many may say this new assertiveness by China’s regulators is biased against western firms, and in some cases perhaps that’s true. But in most cases the reason for that bias may simply be due to the greater sophistication of the western firms compared with their Chinese counterparts.

My biggest concern in all this is that we may soon see a new wave of over-regulation that is typical of China. Such excessive bureaucracy often ends up stifling innovation and impeding natural market forces. But for now at least, this new regulatory assertiveness appears to be part of a changing business landscape for multinationals in China, as is likely to continue as Beijing tries to boost domestic consumption.

Bottom line: A new probe against Tetra Pak reflects Beijing’s growing determination to maintain competition as it tries to boost domestic consumption.

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