CONSUMER: iKang Calls for Anti-Trust Regulation of Private Sector

Bottom line: China’s anti-trust regulators need to wake up to the growing clout of big nmes like Tencent and Ctrip in emerging industries and move more aggressively to stop them from engaging in anti-competitive behavior.

iKang accuses rival of monopoly behavior

A war of words broke out last week between two of China’s largest private clinic operators, as one accused the other of violating the nation’s anti-monopoly laws with a recent purchase. The case pitting iKang (Nasdaq: KANG) against larger rival Health 100 (Shenzhen: 002044) casts a spotlight on growing concerns about anti-competitive behavior in China’s vibrant private sector, which boasts many companies whose size is already approaching some of the nation’s largest state-run giants.

And yet despite the size of these companies and increasing cases of anti-competitive behavior, China’s anti-monopoly regulators have largely ignored the domestic private sector, focusing instead on big foreign and state-run firms. The validity of iKang’s accusations against Health 100 still need to be proven, since China’s private clinic sector is still very young and may not have the scale to qualify for monopoly consideration.

But the case does point out the need for China’s regulators to become more aggressive in combating anti-competitive behavior in China’s private sector. Failure to do so will only embolden some of China’s biggest private companies to use their growing market dominance to bully consumers and business partners, under the belief that anti-trust laws don’t apply to them.

China’s healthcare sector was traditionally dominated by big state-owned hospitals and clinics in the reform era, but has been slowly opening to private operators in recent years. Two of the biggest are iKang and Health 100, though neither is very big for a country of China’s size. Despite their industry-leading status, Health 100 and iKang currently have just 200 and 80 clinics throughout China, respectively.

Last week iKang accused its larger rival of trying to attain monopoly status after Health 100’s owner purchased a controlling stake of smaller operator Ciming Checkup (Shenzhen: 002710), owner of 58 clinics. (Chinese article)

iKang cited the combined annual revenue of Health 100 and Ciming in raising the case to the regulator, saying the 2 companies’ combined figure of 2.34 billion yuan ($360 million) qualified as monopoly status under China’s anti-monopoly law. Health 100 said iKang’s was just trying to raise its own profile as it fights a separate battle with a hostile bidder seeking to buy the company.

Rising Clout of Tencent, Ctrip

iKang’s accusations come 3 years after a higher profile case that saw a judge rule that Internet giant Tencent (HKEx: 700) was innocent of anti-competitive behavior in the social networking arena, following a complaint by leading security software maker Qihoo (NYSE: QIHU). Tencent was already a major force in social networking at the time via its popular QQ instant messaging service, but has become an even larger player since then with the rise of its hugely popular WeChat mobile messaging platform.

WeChat now has more than 650 million monthly active users and QQ more than 800 million, equal to more than the entire population of China. Tencent has used that clout to peddle a wide range of new services linked to the 2 platforms, and also to stifle competing products from the likes of Alibaba (NYSE: BABA) and China’s 3 mobile carriers. And yet despite loud protests from some quarters, the nation’s anti-monopoly regulator has yet to show any indications of probing Tencent for anti-competitive behavior.

A similar situation is unfolding in the travel services sector, where industry leader Ctrip has embarked on a buying spree over the last year that has seen it buy big stakes in most of its major rivals, including Qunar (Nasdaq: QUNR), eLong, Tuniu (Nasdaq: TOUR) and Tongcheng. Those tie-ups have seen a sharp reduction in competition, resulting in complaints and other defensive action from unhappy hotel operators and airlines that are 2 of Ctrip’s largest business partners. And yet despite that, regulators have again shown no signs of launching a probe into anti-competitive behavior.

Instead, China’s regulators have spent most of their efforts in the 8 years since Beijing passed its anti-monopoly law pursuing foreign companies and big state-run firms. A wave of such investigations 2 years ago resulted in big fines against a wide range of foreign names like Microsoft (Nasdaq: QCOM), Qualcomm (Nasdaq: QCOM) and Volkswagen (Frankfurt: VOWG), and regulators have also targeted some big state-run names like broadband service providers China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA).

Following years of breakneck growth, names like Tencent have become nearly as large as big state-run players like China Mobile, earning similar money and wielding huge influence in their rapidly emerging spaces. Regulators should wake up to this fact and move more aggressively to stop these big names from abusing their clout, which will ultimately benefit everyone by maintaining competition and keeping the market open to new entrants and innovation.

Related posts:

(NOT FOR REPUBLICATION)

(Visited 297 times, 1 visits today)