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Taming the Chinese leviathan: is antitrust regulation a false hope?

To many it seems anomalous that a communist regime like China would adopt an antitrust law. It seems even more bizarre that China would apply its antitrust provisions to regulate its state-owned enterprises (SOEs). This simplistic view, however, fails to reflect the complexity of the Chinese political economy today. To provide a more nuanced understanding of how China's Anti-Monopoly Law (AML) could be applied to SOEs, this Article analyzes the factors bearing on the demand and supply of antitrust regulation of SOEs. Demand to regulate SOEs arises in both competitive and regulated sectors. After several rounds of market reform, Chinese SOEs now enjoy significant operational autonomy. Although competitive SOEs lack monopoly power, local protectionism can foster market conditions conducive for cartels to arise at the regional level. Within the regulated sectors, the limited competition orchestrated by the Chinese government creates competitive tension among SOEs, leading powerful SOEs to demand regulation of their state-owned rivals. On the supply side, the main supplier of antitrust enforcement has so far been the administrative enforcement agencies. Contrary to popular perception, these agencies are motivated to bring cases against SOEs because it helps them to expand their policy control in regulated sectors. But their efforts are largely unobservable due to opacity of enforcement and a near absence of judicial supervision. At the same time, they face constraints imposed by the hierarchical bureaucracy. As a consequence, the main battle these agencies face in tackling SOE cases is fought within the bureaucratic hierarchy rather than in courts. As the Chinese government continues to deepen market reform and grants more autonomy to SOEs, demand for antitrust regulation will increase. However, without effective judicial oversight, antitrust regulation of SOEs is likely to be arbitrary and opportunistic. This Article therefore predicts that China is unlikely to have an effective antitrust policy to regulate SOEs.

   A. Increased Autonomy for SOEs
   B. How State-Owned Monopolies Arise
   C. SOEs in Competitive Sectors
   D. SOEs in Regulated Sectors
   A. The Utility Function of Administrative Agencies
   B. Enforcement against Central SOEs
   C. The China Telecom and China Unicom Case
   D. Enforcement Against Local SOEs
   E. Shanghai Gold Retailer Case


After fourteen years of wrangling and debate, China finally promulgated the Anti-Monopoly Law (AML) on August 30, 2007. (1) To many it seems anomalous that a communist regime like China would adopt an antitrust law. It seems even more bizarre that China would apply its antitrust law to regulate its state-owned enterprises (SOEs). Indeed, antitrust law itself grew from the soil of the western democracy and free market economy. Its creation is predicated on the recognition that the market cannot always self-correct, and thus government must intervene when the market fails. But the Chinese economy is run by a single ruling party--the Chinese Communist Party (CCP). Communist ideology is based on the notion that public ownership and state control are inherently superior to private ownership and free market competition. (2) Thus the attempt to regulate Chinese SOEs through antitrust law seems paradoxical. Since SOEs are created and sanctioned by the State, the State as owner can directly give instructions to the SOEs as to how they should behave. (3) Alternatively, the State can establish the performance targets and criteria through ex ante regulation. (4) If either means proved effective in controlling the SOEs, the anti-competitive behavior of SOEs should never have occurred in the first place. So why would the State ever intervene as an antitrust regulator? (5)

Indeed, during the drafting of the AML, scholars, government officials, and interest groups disagreed fiercely as to whether antitrust law should be applied to SOEs. (6) The upshot is Article 7 of the AML, which sets the ambiguous tone that SOEs could be subject to antitrust regulation but leaves room for speculation that they could be largely exempt from the AML. (7) Meanwhile, the fantasy that public ownership is a superior form of organizing economic activities has long ended in China. (8) Rather, SOEs are now viewed as a significant distortion of the Chinese economy. After several rounds of privatization, the state sector still looms large in the Chinese economy and SOEs are still the leviathan in the business sphere. (9) Despite various rounds of enterprise reforms, many SOEs remain underperforming, inefficient, and corrupt. (10) The numerous benefits and privileges they enjoy, whether formal or tacit, have afforded many of them the monopolistic status to crowd out more efficient and competitive non-state actors.

Policymakers have high hopes that the AML could tame the leviathan by breaking the barriers of entry for nonstate firms and enhancing competition between state-owned and private firms. (11) This has been deemed crucial for the next stage of enterprise reform and the improvement of allocative efficiency in the Chinese economy. (12) But conventional analysis predicts that the AML is unlikely to be enforced against SOEs. True, there have been perennial complaints among Chinese consumers and private businesses about the monopolistic behavior of SOEs. But these entities are widely dispersed and lack the incentive to bring cases against SOEs. (13) Even if they were to seek action, their voices would likely be suppressed by powerful interest groups representing large SOEs. Therefore, private enforcement is unlikely to be effective in tackling the anti-competitive behavior of SOEs. Similarly, public enforcement against SOEs also seems unlikely, given the significant opposition antitrust enforcement agencies could face.

Currently, power to enforce the AML is fragmented. The main responsibilities are split among three administrative agencies--namely, the Ministry of Commerce (MOFCOM), the National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC). Contrary to the predictions of conventional analysis, these agencies frequently bring actions against SOEs under the AML. On November 9, 2011, NDRC announced on state-owned television network CCTV that it had been investigating two large telecommunication firms--China Telecom and China Unicom--for allegedly conducting price discrimination against rival companies (China Telecom and China Unicom case). (14) As the first antitrust investigation of Chinese SOEs, this high-profile case marked a turning point in Chinese antitrust enforcement. Since then, SOEs have been subjected to frequent antitrust investigations. So far, the NDRC has investigated a number of high profile cases and imposed remedies and hefty fines on a variety of state-owned actors. These include large, powerful, centralized SOEs such as China Telecom and China Unicom, as well as local SOEs such as premium white liquor manufacturers Maotai and Wuliangye, (15) gold retailers in Shanghai, (16) a salt manufacturer in Wuchang, (17) large cement manufacturers, (18) auto insurance companies, (19) and auto manufacturers. (20) The SAIC has also investigated a cartel involving a number of locally state-owned cement manufacturers in Liaoning province (21) and abusive behavior by tobacco companies in Neimeng and Jiangsu provinces. (22) Within the realm of merger review, more than twenty-seven mergers involving SOEs have been notified; (23) subsequently, conditions were imposed on General Electric/China Shenhua. (24) In addition, the NDRC publicly vowed to prioritize their enforcement efforts in a number of areas that are dominated by large state-owned monopolies, such as the oil, banking, and telecommunication industries. (25) Insiders working at the NDRC and SAIC indicate that they have investigated more cases involving SOEs beyond those announced in public. (26) Due to a variety of reasons, many cases were not disclosed and thus we are unable to verify the exact number of SOE cases that have been investigated by Chinese antitrust enforcement agencies. (27)

While information about the actual antitrust enforcement against SOEs is incomplete, the public enforcement record already has yielded a far higher enforcement level than the conventional analysis predicts. This disparity demands a more nuanced understanding of antitrust intervention in the state-owned sectors. In his groundbreaking article The Theory of Economic Regulation, George Stigler sought to explain the pattem of industry regulation by viewing it as a good whose output is determined by demand and supply. (28) He challenged the conventional wisdom that regulation of industry is instituted primarily for the protection and benefit of the public at large. (29) Stigler further dismissed the idea that regulation is an outcome of a political process that "defies rational explanation." (30) Rather, he argues that regulation is demanded by economic groups seeking protection, and that democratic political processes supply the regulation that industry desires. (31)

Stigler's article "forces a fundamental change" in the way we examine regulation. (32) Instead of treating regulation as a free good whose demand is generated by market failures, Stigler sees it as "the outcome of the forces of demand and supply. (33) Inspired by Stigler, this Article directs attention to factors bearing on the demand and supply of antitrust regulation of SOEs in China. It finds that demand to regulate SOEs arises in both the competitive and regulated sectors. Contrary to conventional analysis, Chinese enforcement agencies are motivated to bring actions against SOEs in order to expand their policy control. However, due to the opacity of enforcement and a near absence of judicial supervision, their enforcement actions are likely to be arbitrary and opportunistic and therefore unlikely to be effective in addressing the anti-competitive behavior of SOEs.

This Article is structured as follows: Part II discusses how demand to regulate SOEs arises in the Chinese market. It first discusses how SOEs have achieved significant autonomy in decision-making through various rounds of reforms, in the process creating demand for the state to intervene as a regulator rather than an owner. It then clarifies a common misconception about Chinese SOEs and analyzes how state-owned monopolies can arise in both the competitive and regulated sectors. Part III examines the supply of antitrust enforcement against SOEs, beginning with the costs and benefits of the administrative enforcement agencies when applying the AML to SOEs. It then considers how the different incentive structures and constraints faced by officials in various central ministries and multiple layers of government could lead to different enforcement outcomes. Part IV concludes and suggests implications for the next stage of Chinese SOE reform.

II. The Demand for Antitrust Regulation of SOEs

For SOEs to be subject to antitrust law, at least two essential economic conditions must be satisfied. First, there must be a market in which price plays a role and the SOE enjoys the autonomy to set its price. If price is tightly controlled and regulated, there is no market and of course there is no room for competition. Second, the individual firm or an association of firms acting collectively must enjoy significant market power (i.e., monopoly power). An SOE with no monopoly power would be unlikely to conduct anti-competitive behavior unless it joins with other firms to form a monopoly (i.e., a cartel). Each of these two conditions is examined in detail in the following sections.

A. Increased Autonomy for SOEs

Antitrust law regulates market behavior, not government behavior. If the hands of the managers of Chinese SOEs were tied and the government gave detailed instructions as to how the SOEs should be run, there would be no cause for antitrust regulation. But this is no longer the case in China. Since the Third Plenum of the Eleventh Central Committee of the CCP in 1978, Chinese leaders have come to believe that the main defects in SOE performance are due to the "over-concentration of authority." (34) Indeed, since the 1980s, the main agenda of SOE reform has been to grant more autonomy to the SOEs in order to motivate them to pursue profit and growth.

In the early 1980s, dual-track reform was introduced, allowing managers to sell surplus products at market prices for a profit, once the SOEs fulfilled their compulsory production quotas. (35) The "contract responsibility" system was implemented in the mid-1980s whereby managers of SOEs were held responsible for profits and losses. (36) In 1992, the Chinese government conducted a massive price reform program that resulted in the deregulation of prices of raw materials, capital goods, and transportation services (the number of price-regulated items shrank from 737 to 89). (37) This list was further reduced to 13 in 2001. (38) The removal of price controls officially ended the history of the dual-track pricing system and was the key to the functioning of a Chinese market system. According to the OECD, more than ninety percent of retail transactions and sales of agricultural products were determined by market prices by 2002. (39)

Concurrent with its plan of price reform, the government started to introduce modern corporate governance structures into SOEs. The first step it took was the passage of the Company Law in 1993, which provided a framework for converting traditional SOEs into modern corporations. (40) Beginning in the mid-1990s, the government began a comprehensive overhaul of the SOE sector. It first conducted a massive privatization program by selling off loss-making small and medium-size SOEs. Meanwhile, the government aimed to transition the remaining SOEs from a structure involving sole state proprietorship and control by industry-specific government agencies to a western-style corporate government structure.

In 2003, the Chinese government created the State Asset Supervision and Administration Commission (SASAC), a special commission directly subordinate to the State Council, to manage its ownership interests. (41) SASAC's main responsibility is to manage and monitor the state's investments in SOEs, with the aim of maximizing value. However, SASAC is only supposed to exercise arms ronald Coase & Ning Wang, How China Became Capitalist 42 (2012). length supervision, and does not intervene into the daily business decisions of SOEs. (42) Local governments--including those at provincial and municipal levels--were also directed to establish their own SASACs. These regional SASACs represent the local government's ownership of assets and are not subordinate to the central SASAC. (43)

The historical evolution of SOE governance over the past three decades reveals the Chinese leadership's consistent logic in reforming SOEs--to incentivize SOEs to become profit-oriented commercial entities, they need to be granted more autonomy in running their operations. Inevitably, granting more managerial autonomy to SOEs necessitates weakening the link between the state and enterprise. Indeed, as SOEs gain autonomy, agency problems arise. Research by Milhaupt and Zheng finds that the Chinese state has less control in SOEs than their ownership interest suggests. (44) This is also partly reflected in the recent shopping spree by SOEs abroad, which seems to be driven more by the empire-building incentive rather than the goal of maximizing the value of state assets. (45) Of course, as long as these SOEs continue to be owned by the state, their link cannot be completely severed. Today the main control mechanism the government has applied to SOEs is through the control of their personnel (i.e., by appointing the top executives of SOEs via the nonmenklatura system). (46) So the key question regards the degree to which such personnel control translates into influence of the strategic business decisions of SOEs. Given the significant autonomy SOEs now enjoy in their commercial business decisions and the abolishment of bureaucratic control in direct management, it seems very unlikely for any bureaucratic department, particularly SASAC, to intervene in the day-to-day commercial activities (e.g., setting prices and quantities) of SOEs. This explains why the state resorts to antitrust regulation rather than direct bureaucratic instruction when it intervenes.

B. How State-Owned Monopolies Arise

In the West, Chinese SOEs tend to arouse images of large, powerful central enterprises occupying the top slots in the Fortune 500. This leaves an impression that all Chinese SOEs are monopolies. (47) But SOEs have a heterogeneous presence in China and are not limited to those national champions operating in strategically important industries. Indeed, despite the fact that political power is highly concentrated in the central government, the Chinese economy is highly decentralized and its governance has mostly been delegated to regional governments. Thus when people's attention fixates on those SOEs owned by the central government, they ignore the large bulk of SOEs whose control rights and income rights reside with the regional governments. (48)

C. SOEs in Competitive Sectors

In the past decade the central government has gradually retreated from controlling SOEs that are solely operating in competitive sectors. (49) But to this day many regional governments continue to control SOEs that compete head to head with other non-state companies. Indeed, former Premier Zhu Rongji's famous slogan during the massive privatization reform of the 1990s--"grasping the bigger while letting go the smaller"--may have given the false impression that SOEs have all retreated from competitive industries. (50) True, many sectors where small SOEs operate became competitive after they underwent intensive privatization. (51) But the large SOEs remain and size alone does not say much about the nature of the industry sector in which they operate. (52) Indeed, even today it is common for regional governments to control large SOEs that operate in highly competitive sectors. These SOEs are deemed local champions and are thus important contributors to local gross domestic products. For instance, Gree Electric Appliances, Inc., a leading manufacturer in air-conditioning and other electronics in China, is controlled by the Zhuhai City government in Guangdong province. Shanghai Brightfood, a multinational food and beverages manufacturing conglomerate, is controlled by the Shanghai government. Sichuan Changong Electric Co., Ltd., one of the leading TV manufacturers in China, is controlled by the Sichuan provincial government. While some parts of these companies have become listed, the local SASACs continue to control the majority of their equity, and their state-owned shares are restricted from public trading.

SOEs that operate in these competitive sectors are unlikely to have monopoly power, unless they are owned by regional governments and are seeking shelter from competition. Indeed, under China's decentralized economy each region is relatively self-contained and self-sufficient, the size of the enterprise is relatively small, and industries are less concentrated than other centrally planned economies. (53) However, as regional governments compete fiercely for economic growth within their own jurisdictions, decentralization increases the incentives as well as the range of political means for local governments to erect trade barriers and ban imports. (54) Local protectionism therefore artificially carves up a large, single Chinese market into smaller segments and reduces the size of the market as well as the quality of market demand. (55)

At the same time, even those SOEs without monopoly power can also violate antitrust law. A cartel, for instance, is a form of antitrust violation committed by firms with no monopoly power. Generally speaking, the more concentrated the market is, the fewer the participants involved and thus the lower the cost of coordinating and maintaining the cartel. Thus, cartels tend to be more stable in concentrated markets rather than in highly competitive markets. For instance, the cement industry has long been beset with overcapacity problems and for decades the central government has been calling for consolidation and rationalization. (56) Local governments have an ambivalent response to this. On one hand, they fiercely oppose cross-regional mergers and acquisitions as they could harm local tax revenue and cause unemployment. (57) On the other hand, local governments enthusiastically support expansion of local SOEs through regional mergers and acquisitions as this helps create local champions. (58) This in fact reflects a phenomenon known as "state advance and private retreat" (i.e., "guo jin min tui") introduced after the recent financial crisis, which has been observed not only in the cement industry, but also in other industries such as steel, iron, and coal. (59) Thus, despite the fact that national concentration is low, (60) local protectionism could give rise to conducive market conditions for cartels to arise at the regional level.

When an SOE faces fierce competition from non-state firms, it is tempting for it to form a cartel with rivals to avoid so-called "excessive competition." (61) Moreover, because they are more susceptible to market risks, they are more likely to be loss-making than those regulated SOEs. Local governments are often sympathetic to these so-called "crisis-cartels," as bankruptcies of local SOEs can cause massive unemployment in the regional economy. In 2013, the Liaoning Administration for Industry and Commerce (AIC), a local SAIC office, investigated a cartel organized by a cement industry association. (62) According to SAIC's press release, the association organized eleven cement manufacturers in Liaoning province for price fixing and output restriction. Although the press release does not publicly indicate it, some of these manufacturers are in fact owned by the regional governments. In 2014, the NDRC imposed a fine of RMB114 million on a number of cement companies for forming a cartel to restrict output in order to prevent "excessive competition." (63) Curiously, the NDRC did not announce the case in public but the information leaked out from an intelligence agency. An insider notes that most of the firms involved are SOEs that have been publicly listed on domestic stock exchanges and thus fear that public disclosure would influence their stock performance. (64)

SOEs without monopoly power can also violate the AML if they try to fix the price of products for resale to downstream customers--a practice known as resale price maintenance. While it has been widely recognized among economists that such a form of behavior is unlikely to be harmful if firms lack significant market power, (65) the AML is silent on this. This makes it possible for Chinese regulators to intervene in vertical cases when it is not even clear whether the firms involved have the monopoly power to inflict any anti-competitive harm. (66) For instance, in a recent investigation involving two premium white liquor companies, the NDRC took a "per se" approach. Once it identified evidence that these two state-owned liquor companies had been coercing their distributors not to lower the retail price, it held that their behavior was anti-competitive--without investigating whether the pro-competitive effects outweighed anti-competitive effects. In this regard, ambiguity in the AML and the lack of judicial supervision of administrative behavior make it possible for Chinese SOEs to be subject to less favourable treatment in China than in countries such as the United States and Canada, which take a less hostile stance towards resale price maintenance conduct.

D. SOEs in Regulated Sectors

Generally speaking, SOEs operating in regulated sectors are legal and/or natural monopolies. Occupying the "commanding heights" of the Chinese economy such as energy, aviation, telecom, banking, railway and shipping, these SOEs are controlled by the central government and are granted exclusive or privileged roles, thus shielding them from competition from private investors. (67) During the planned-economy era, SOEs in these regulated sectors were directly managed and supervised by central ministries in charge of different economic sectors. These SOEs were deemed the "sons and daughters" of these ministries, and business decisions were closely monitored and controlled by government bureaucracy. The 1998 government-restructuring program abolished many of these industrial ministries and they became streamlined under the supervision of the State Economic and Trade Commission (SETC). (68) As such, they were stripped of the power to directly supervise SOEs and intervene in their internal affairs. (69) In 2003, the SETC's bureau on state enterprises was transferred to SASAC, which only exercises arms-length supervision of SOEs. (70) Today, with the exception of the railway industry, the State has tried to separate business from the government in each of the sectors ("zheng qi fen kai"). (71) Through various rounds of restructuring and reorganization, the government has also sought to create competition by splitting the pre-existing state-monopolies into multiple large SOEs. (72)

Meanwhile, the Chinese government began to establish a series of independent regulatory commissions governing key infrastructure sectors, including the Ministry of Information Industry (established in 1997), the General Administration of Civil Aviation (established in 2002), and the China Banking Regulatory Commission and the State Electricity Regulatory Commission (SERC) (both established in 2003). But these independent regulators are not the only government agencies in charge of regulating SOEs. Instead power is fragmented among a number of central regulators. For instance, SERC as an electricity regulator presumably is best positioned to set an efficient price for electricity, but lacks the authority to do so. (73) That power instead lies with the Price Bureau of the NDRC, which continues to exercise price regulation in 13 regulated sectors, including the administration of retail prices for electricity, gasoline and telecommunication services. (74) As the NDRC also assumes the important role of macroeconomic management, it often artificially suppresses prices below market levels in order to curb inflation--leading to energy shortages. (75) In fact, for a long time the NDRC controlled most of the important regulatory functions in the power sector and as a result SERC was treated as a peripheral advisory body. (76) This situation lasted until 2013, when SERC was merged with the energy bureau and became part of the NDRC. Today even though SERC and the Price Bureau are under the same roof, the Price Bureau continues to exercise control in setting the price of electricity.

One unique feature of regulated sectors such as electricity and telecommunications is that they typically include segments of basic infrastructure that have the characteristics of "natural monopolies." That is, competition is not viable in certain segments of these sectors and it is most efficient to have a single firm operating in the market. At the same time, many countries have come to realize that competition could be introduced in upstream or downstream sectors. (77) A prime example is found in the electricity sector. While it is often most efficient to have a single grid for electricity transmission, many countries have deregulated power generation and allowed entry into this market. (78) China has been making similar reforms by unbundling the pre-existing state-owned monopolies in the electricity and telecommunication industries. Although individual SOEs still dominate the basic infrastructure market, the government has tried to create competition in the upstream and/or downstream market. These segments have also been opened to private investors, including foreign ones subject to ownership restrictions. (79) The problem, however, is that those SOEs who have dominance in the infrastructure markets are vertically integrated, so they also operate in the competitive segments of the markets. When the vertically integrated SOEs attempt to leverage their dominance from basic infrastructure markets into competitive markets by squeezing the profit margin of other SOEs, this creates demand among those competitive SOEs for antitrust protection.

For example, in the early 2000s, the State Power Corporation, a vertically integrated state monopoly, was broken into five generating companies, two grid companies, and a number of service companies. In particular, the transmission market was shared by two companies--the State Grid Corporation (which owns and controls the majority of the regional grids in China) and the Southern Power Grid Company (which owns and controls the grids in the remaining five provinces including Yunnan, Guizhou, Guangxi, Guangdong, and Hainan). Notably, both companies continue to hold power-generating capacity that was previously assigned to the transmission and distribution subsidiaries of the State Power Corporation, and thus they are also vertically integrated. (80) This creates demand for the sector regulators, including SERC and the NDRC, to regulate the national transmission fee and to curb potential anti-competitive behavior in these two large state transmission companies. (81)

Another example can be found in the telecom sector. This industry was originally monopolized by China Telecom, which in turn was administered by the Ministry of Post and Telecommunications, a predecessor of the Ministry of Industry and Information Technology (the MIIT). Since 1994, the telecom industry has gone through several rounds of market restructuring, resulting in a competitive landscape of three large public telecommunication operators (PTOs), including China Unicom, China Telecom and China Mobile. (82) In the most recent round of restructuring, the government attempted to help these PTOs to develop "fullservice" capabilities (e.g., fixed line, mobile phone, and internet services), but the competition among them remains inadequate. (83) For instance, according to data obtained by the NDRC, China Telecom and China Unicom together control the vast majority of interconnection networks in China. (84) As they divide up the market along geographic lines, they effectively operate as a monopoly in their own respective geographic territories. (85) Meanwhile, they also compete downstream in the broadband access market with other internet service providers (ISPs). While the interconnection fee is regulated by the MIIT, there have been perennial complaints among ISPs that these two SOEs charge exorbitant interconnection fees, thus making it difficult for small ISPs to compete with them in the downstream market. (86)

It is thus no coincidence that the first antitrust investigation involving SOEs arose in the broadband access market. According to the complaints lodged by rivals, China Telecom and China Unicom charged higher fees for interconnection (fixed to RMB 1,000 MB/month) (87) to those large ISPs posing a serious competitive threat; lower prices (RMB 200-300 MB/month), by contrast, were set for noncompetitors (often small ISPs). (88) But this differential pricing scheme soon led to arbitrage opportunities, as small ISPs packaged their bandwidth and resold it to large ones. (89) After detecting this, China Telecom issued a notice in July 2010 to its subsidiaries prohibiting resale by small ISPs. (90) This action resulted in the blackout of internet access for many large ISPs, who relied on the cheaper bandwidth sold by small ISPs. (91) One of the companies that suffered significant loss is China Railcom, a state-owned subsidiary of China Mobile. Naturally, China Railcom is a fervent endorser of the NDRC's antitrust investigation into China Telecom and has closely cooperated with the NDRC during the investigation. (92) Another firm supporter for the NDRC's action is the State Administration for Radio, Film and Television (SARFT), whose operating business has recently entered the ISP market and become a formidable rival to China Telecom and China Unicom. (93) Of course, SOEs such as China Railcom and SARFT called for antitrust regulation of SOEs only half-heartedly. They were well aware that they are also sheltered from competition in many of the areas in which they operate, and that they would rather be left in peace as long as everything was in order. But when a problem arises, we can expect that they will demand intervention and lobby the various bureaucratic departments for protection from antitrust regulation.

III. The Supply of Antitrust Regulation of SOEs

Unlike the United States, China relies primarily on administrative enforcement rather than private enforcement of the AML. While private individuals have resorted to Chinese courts for antitrust remedies, few of them have been able to win a suit. (94) One of the major obstacles for plaintiffs, particularly individual consumers, is the difficulty of satisfying the burden of proof under the AML. (95) Given these challenges in private enforcement, the main suppliers of antitrust regulation in China so far have been the administrative agencies in charge of the AML enforcement.

If we view antitrust regulators as rational actors, their decision-making process is guided by the careful weighing of the costs and benefits of the consequences of their enforcement actions. So in order understand the behavior of Chinese antitrust regulators, we need to carefully examine their incentive structure--the benefits and costs they confront in tackling SOE cases. Moreover, Chinese antitrust regulators face severe capacity constraints. As with private actors, regulators are motivated to produce outputs that generate the highest profits; that is, they will optimize their resource allocation to cases that will bring them the most net benefits.

A. The Utility Function of Administrative Agencies

In a classic paper on administrative behavior, Posner models the utility of administrative agencies' law enforcement activity as the public benefit, if prosecuted successfully, discounted by the probability of successful prosecution.*1 To maximize expected utility, a government agency invests resources such as its staff members' time in prosecuting violators. (97) Generally speaking, the more the defendant spends in litigating against the government's action, the less likely it is that the government will succeed. (98) Posner's model has assumed a democratic setting where the judiciary provides a check on an agency's behavior and the defendants will fight against the government's action in court. But in a country like China, where judicial power is often usurped by political power, judicial oversight is severely limited. Since the enactment of the AML in 2008, there has been only one unsuccessful appeal lodged against a local enforcement agency in Jiangsu and no appeal has been lodged against any central enforcement agency. (99)

Since the promulgation of the Administration Litigation Law in 1989, plaintiffs have rarely been able to obtain victory in administrative lawsuits. (100) Even if the court accepts their cases, very often they have to withdraw their suits because of the pressures from the court or from the agencies they were trying to sue. (101) Businesses in China know too well that it is not cost-effective to challenge the government's actions in court, given the low success rate of administrative litigation and the potential for retaliation from the government they are trying to sue. (102) Worse yet, antitrust lawyers in China are also reluctant to advise their clients to appeal against an administrative decision. As they regularly represent clients dealing with these antitrust enforcement agencies, lawyers themselves fear retaliation from the government in future cases or transactions.

But the near absence of judicial review does not mean that Chinese agencies do not incur any costs or face any constraints in prosecuting antitrust cases. Certainly, Chinese administrative agencies need to invest resources in investigating cases. But because the evidence they gather and the analysis they conduct are seldom challenged in court, their cost in investigation and prosecution is very low when compared with the cost faced by government agencies in countries with established rule of law. As a consequence, the main recourse for defendants subject to antitrust investigation is to lobby the relevant bureaucratic departments, a practice which transforms law enforcement into a bureaucratic process of bargaining and negotiation. Indeed, in China the main battleground for administrative enforcement is not in courts, but within the government bureaucracy. This is particularly the case for SOE defendants, who have relatively easier access to the government and can spend their resources more effectively on lobbying the relevant government departments. As a consequence, the more politically powerful the SOE is, the more resources it has for lobbying the government bureaucracy--and, thus, the higher the cost that confronts any Chinese administrative agency that would challenge its actions.

Chinese SOEs traditionally enjoyed bureaucratic ranks, and their rankings were determined by the level of the government that supervised them. (103) Even if the bureaucratic control of SOEs has gradually been abolished in the past few decades, the political pecking order of SOEs has persisted. (104) Today many of the top business leaders within SOEs continue to be appointed through the nomenklatura system and accordingly enjoy bureaucratic ranking (which also implicitly determines the ranking of the SOEs). This means that the leaders of SOEs have direct contact with the government--that they do not need to work through business associations to convey their opinions and views and can instead lobby directly. (105)

Moreover, the "revolving door" policy further strengthens the ability for SOEs to lobby the relevant bureaucratic departments. (106) In China, it is common for SOE managers to be transferred to government positions and government officials working with SOEs can also be subsequently appointed to SOE management positions. (107) A recent survey reveals that close to 30% of the 183 officials above vice-ministerial level in various central ministries and organizations used to work for SOEs. (108) Another survey found that 115 senior executives working at 47 central SOEs previously served in the government." (109) For example, Zhou Yongkang, a former member of the politburo who has extensive experience working in the oil sector, maintains a large factional network in national oil companies through his influence on personnel appointment in these firms. (110) Crony capitalism also plays an important role in this regard. It is widely known domestically and abroad that children of senior Chinese leaders (the so-called "princelings") have served as top executives at a number of large SOEs. (111) For instance, the family of Li Peng, the former premier, has tremendous power and influence in China's electric power industry. (112)

Indeed, the political pecking order of the enforcement targets vis-a-vis the regulators is an important determinant of the cost Chinese antitrust agencies face in enforcing the AML. Other things being equal, the cost of bringing a case against an SOE will be higher than bringing one against a non-state firm; and the cost of challenging the action of a central SOE will be higher than that of challenging a local SOE. The cost further varies depending on the bureaucratic ranking of the antitrust agencies. The higher the agency's bureaucratic ranking, the less opposition it faces from SOEs. For instance, the cost of prosecuting a local SOE will be lower for central enforcers than for local ones, as the former have a higher bureaucratic ranking than the latter and thus are not subject to constraints imposed by local governments (as discussed in more detail in Part III(C) below). Meanwhile, among the three central administrative enforcement agencies responsible for antitrust enforcement, there exists an implicit political pecking order--this despite the fact that they officially enjoy the same ministerial rank. As discussed in Part III(B) below, the NDRC is often deemed more powerful than MOFCOM and SAIC due to its historical status as supra-ministerial and its pervasive policy control. SAIC seems the weakest of the three as it has a relatively narrow mandate and has the least policy control over SOEs among the three agencies.

Another problem with administrative enforcement (hardly unique to China) is the information asymmetry that exists between the public and the administrative agencies. Unlike private enterprises, the output of government agencies is notoriously difficult to evaluate. Indeed, when regulators tout the amounts of fines they impose and the number of cases they bring, these figures may have only a weak correlation with real gains in consumer welfare. For instance, in the United States, antitrust agencies have been observed to misallocate effort on cases that they are more likely to win rather than those that could potentially prevent greater anticompetitive harm. (113)

But the problem in China is more severe and is not limited to the misallocation of enforcement resources. Effective judicial supervision lowers the cost of enforcement errors, particularly the cost of over-enforcement. Without an impartial judiciary supervising administrative behavior, the public is deprived of an important source of information to evaluate the performance of agencies. So the fundamental question of whether or not an antitrust intervention enhances welfare is continuously left open. This absence of judicial supervision, coupled with opacity in government enforcement, has made the behavior of Chinese government agencies largely unobservable to outsiders. Thus information asymmetry could lead to problems of moral hazard where administrative agencies focus on collecting the benefits of regulation for themselves rather than on maximizing the public benefit. That is, the public benefit may very well be decoupled from the benefit to the administrative agencies.

So what do Chinese administrative agencies value most in antitrust interventions? In other words, what do they hope to gain from prosecuting antitrust cases? Political scientists have long observed that administrative intervention in the market creates valuable resources for Chinese bureaucrats, who can then appropriate its value in the form of bribes (corruption) or political support (patronage). (114) As power tends to be fragmented within the Chinese governmental bureaucracy, there is an endless struggle among government agencies at all levels for policy control. (115) The more control an agency has, the more opportunities it will have for rent-seeking activities. For forward-looking government officials, policy control can also help expand resources available to agencies controlled by faction members. (116) The agencies can then capitalize on these resources to accumulate more administrative merits ("zhengji"), thus helping faction members rise in the CCP hierarchy. (117)

At the same time, Chinese antitrust enforcement agencies have highly constrained resources. In particular, the NDRC and SAIC have respectively 15 and 8 people in Beijing who are responsible for antitrust enforcement. (118) MOFCOM has about 35 people in charge of merger review. (119) The total number of staff responsible for AML enforcement at the central level is therefore no more than 60 people. This contrasts with more than 1000 staff members responsible for federal antitrust enforcement in the United States (120) and more than 900 in the European Commission. (121) When demand of regulation exceeds supply, the outcome is either delay in enforcement or selective enforcement. This partly explains MOFCOM's significant delay in merger reviews, as China's merger control procedure necessitates reviewing and responding to all notified mergers. (122) In the case of the NDRC and SAIC, little effort has been made in identifying those markets in which serious problems of monopoly can arise; instead they act almost solely on complaints from disgruntled competitors, purchasers and employees. (123) As their non-action is seldom subject to challenge, they can focus their resources on cases that maximize their net benefit.

B. Enforcement against Central SOEs

Based on the publicly available record, the NDRC clearly stands out among the three government agencies for bringing antitrust actions in regulated state-owned sectors. So far it has initiated antitrust investigation into two large central SOEs, China Telecom and China Unicom, and has vowed to prioritize its enforcement efforts to a number of areas that are dominated by large state-owned monopolies. The other antitrust regulator, SAIC, has not brought a single case against central SOEs. Although a number of mergers involving central SOEs have been notified to MOFCOM, all but one has been unconditionally cleared. While MOFCOM has imposed remedies in GE/Shenhua, it is hard to judge whether these remedies have been imposed properly based on public information. Indeed, some suspect that MOFCOM has been delinquent in handling SOE cases, especially when it comes to prosecuting the failure of SOEs to notify. As of the end of 2014, MOFCOM had not disclosed any cases where parties failed to notify, even though it has admitted that they have dealt with such cases. For instance, the merger of China Unicom and Netcom met the notification thresholds but the parties wilfully disregarded the AML and failed to notify the proposed merger to MOFCOM. Despite criticism from scholars and the general public, MOFCOM has not taken any action against these SOEs. (124) So why does the NDRC appear more aggressive than SAIC and MOFCOM in bringing cases against central SOEs? What has motivated the NDRC to bring those cases?

Certainly, each of the three antitrust enforcement agencies has a clear interest in competing for antitrust policy control. (125) But antitrust is not their only competitive arena. As each of them is nested within central ministries working like large conglomerates, the mission of these ministries has a significant impact on shaping their enforcement of the AML. From the perspective of the leadership at three enforcement agencies, antitrust enforcement is simply another means to fulfilling their original mission--the ultimate goal being to gain more policy control within the scope of their designated responsibilities.

Indeed, China has a huge bureaucracy. The central government consists of various ministries and organization organized by either function (e.g. finance, commerce, securities regulation) or economic sector (e.g., agriculture, telecommunication, transportation). (126) Thus each central ministry and organization has its own distinct and well-defined functions and responsibilities. This structure of government institutions is intended to encourage the expression of the interests of particular departmental sectors--as the saying goes, "[w]here you stand depends on where you sit." (127)

In particular, the NDRC is an agency mainly in charge of macroeconomic management and industrial planning. (128) Its predecessor was the State Planning Commission (SPC). Also known as the little State Council, the SPC played a crucial role when the Chinese economy was centrally planned. (129) But its political stature declined when China embarked on market reform and began liberalizing the prices of most commodities and services. Then in 2003, the SPC consolidated its authority for macroeconomic management and industrial planning by merging with SETC, another supra-ministerial organization that was primarily responsible for coordinating various government agencies for the implementation of the SPC's economic plans. (130) The NDRC currently has 11 bureaus in charge of overseeing various aspects of the Chinese economy. Among its various powers are the rights to approve large investment projects proposed by SOEs and to oversee prices in thirteen regulated sectors--all of them dominated by SOEs. Thus, long before the NDRC assumed its role as an antitrust regulator, it already had significant policy control over SOEs. It is therefore no surprise that the agency is motivated to bring antitrust actions against them despite the relatively higher costs of tackling SOE cases.

Compared with the NDRC, MOFCOM is seen as a more liberal government agency. Its mission is tied to overseeing market development and promoting international trade and investment. (131) MOFCOM has played a key role in representing China in trade deal negotiations with foreign countries--indeed, one of its crowning achievements was representing China in negotiating the trade deals necessary for accession into the World Trade Organization. Thus contrary to the NDRC, whose bureaucratic interest is tied to direct government intervention, MOFCOM's interest lies in advancing the market economy and promoting Chinese trade and investment with the rest of the world. (132) Officials working at MOFCOM are trained to understand the international rules of trade and investment, and many of them have experience working in government posts overseas. It is thus no coincidence that MOFCOM became the main enforcer of merger control, since most of the mergers subject to its review involve multinational companies rather than domestic firms. (133) In fact, MOFCOM started to conduct merger review of foreign acquisitions of domestic assets as early as 2003. (134) Therefore, MOFCOM is well-positioned to play the role of gatekeeper of national interests while ensuring that its merger review is largely consistent with international standards. Accordingly, antitrust regulation of SOEs is not particularly relevant to its original mission.

Compared to MOFCOM and the NDRC, SAIC is smaller and has a narrower mandate. It is primarily responsible for various aspects of market supervision, such as administration of enterprise registration, regulation of unfair competitive behavior, and consumer protection. (135) In terms of political power, SAIC is weaker than the other agencies. Unlike the NDRC, which used to be a supra-ministry, and MOFCOM, which has enjoyed ministerial ranking from the start, SAIC was not promoted to ministerial status until 2001. As SAIC does not assume any important regulatory role over central SOEs, it has less political influence over them and faces higher costs in bringing cases against them than do the other two agencies. The benefits to SAIC are also relatively small since regulation of SOEs is not particularly relevant

to its designated responsibilities.

It is thus no surprise that the first antitrust investigation into central SOEs was brought by the NDRC. As illustrated in the study of the China Telecom and China Unicom case below, the motivation for the NDRC's intervention arose not only from antitrust concerns, but perhaps more importantly from its desire to strengthen its control over telecom pricing. The main challenges the NDRC incurred in investigating this case lay not in gathering evidence or conducting legal analysis, but in bargaining and negotiating with the relevant SOEs and other government actors. For the NDRC, the battle was fought not in the courts, but within the government bureaucracy behind the scenes.

C. The China Telecom and China Unicom Case

In 2011, the NDRC's investigation into two large state-owned telecommunication companies caused a public stir in China. According to the NDRC, China Telecom and China Unicom had conducted price discrimination by charging their rival ISPs much higher prices than those small ISPs not competing with them. (136) When the NDRC announced its investigation on national television, public sentiment was overwhelmingly positive. The case was widely applauded by Chinese intellectuals as a major breakthrough. But it soon ran into a stalemate. A few days after the NDRC's announcement on CCTV, two editorials defending the two SOEs and harshly criticizing the NDRC's investigation appeared in newspapers managed by MIIT, a telecom sector regulator. (137) A few weeks later, both SOEs proposed a number of rectifications and requested suspension of the investigation. (138) The NDRC acknowledged the receipt of the proposal and no fine has yet been imposed. As of the end of 2014, the NDRC has made no announcements regarding its decision. Well-known antitrust scholars such as Xiaoye Wang have expressed disappointment and criticism of the decision. (139)

Without recognizing the political dynamics among the government actors involved, it would be difficult to understand the elusive outcome of this case. When the NDRC tries to regulate large SOEs such as China Telecom and China Unicom, it faces potential opposition from a number of powerful actors. First among these are the SOEs themselves. The leaders of China Telecom and China Unicom are appointed and managed by the Organizational Department of the Central Committee of the CCP and enjoy ministerial rank equal to that of the vice-minister at the NDRC. Thus their bureaucratic ranking is higher than the head of the Price Supervision and Anti-Monopoly Bureau at the NDRC. This means the director general at the Price Supervision and Anti-Monopoly Bureau cannot give direct orders to the head of these two telecom firms. The former would need to obtain support from a higher level of authority at the NDRC or from an even higher level of the government--such as the State Council--in order to exert sufficient pressure to compel the SOEs to comply with its order.

The second potential source of pressure against the NDRC comes from SASAC, the Commission established directly under the State Council and responsible for overseeing the state's assets. SASAC has been emulating earlier campaigns in Japan and Korea, exerting great effort to develop national champions. (140) Its main bureaucratic interest lies in fostering bigger and stronger SOEs. Accordingly, SASAC has the incentive to "protect" SOEs and to grant them monopolistic resources. (141) Indeed, in recent years SASAC has emerged as the powerful and vocal owner of the telecom sector in its efforts to protect the financial interest of these two firms. (142) Thus, even if these two telecom firms did abuse monopoly power in order to maximize their profits, such behavior is perfectly consistent with SASAC's goal to maximize asset values. From SASAC's perspective, harsh antitrust punishment of these SOEs would not only harm their reputation, but would also have significant impact on their stock performance and asset value.

Another potential source of pressure comes from the regulators overseeing certain industry sectors. As discussed in Part 11(B), sector regulation is often fragmented across a number of bodies. When antitrust regulators are added to the scene, it further complicates the power dynamics between those government agencies with influence in the regulation of SOEs. To compare the bureaucracy to a firm, the more actors involved in this process, the more costly the output becomes. (143)

Indeed, the rectifications proposed by China Telecom and China Unicom, if accepted and enacted, would not only address the interconnection issues brought up in the NDRC's antitrust challenge but also would "greatly enhance the penetration of fiber access and broadband access rates [and] reduce the unit bandwidth price for internet users by 35% within five years...," (144) In March 2012, a deputy director from the antitrust unit of the NDRC disclosed developments in the case and revealed "China Telecom and China Unicom had completed expanding their internet broadband-width by 100G and had committed to further reduce network tariffs for consumers." (145) The official also revealed that China Unicom further claimed that "the penetration rate of 4 trillion G bandwidth for public users will reach 50% by the end of 2012." (146) Clearly, these ameliorative commitments have exceeded the scope of the original antitrust complaint, raising the question of whether the NDRC was acting as an antitrust regulator or a sector regulator. Regardless, MIIT's aggressive public campaign defending China Telecom and China Unicom and denouncing the NDRC's actions is revealing. Since the NDRC possesses regulatory control over telecom fees, it is likely that MIIT deemed the NDRC's antitrust intervention as an expansionist strategic move, an attempt to encroach upon its regulatory turf.

As the NDRC never publishes its decisions, and as the case was never contested in a Chinese court, many important questions remain unanswered. First, how did the NDRC reach its decision, and was its analysis supported by solid evidence? Despite the overwhelmingly enthusiastic public support, there clearly have been voices opposing the NDRC's allegations--the voices of scholars, MIIT and the two firms involved. Curiously though, these voices faded away after the two telecom firms committed to proposals for rectification. Second, why did these two telecom firms decide to admit guilt and offer such commitments? Third, what were the roles of other regulators, such as SASAC and MIIT, in shaping the outcome of this case? Based on anecdotal evidence from insiders, (147) as well as MIIT's public denouncement of the NDRC's investigation in its newspapers, it appears that a compromise was reached among the various government actors involved. The bargaining and negotiations that happened behind the scenes, however, are shrouded in mystery.

This case offers a textbook example of how antitrust enforcement against Chinese SOEs takes place not in contested legal battles, but through processes of negotiation and bargaining within a hierarchical bureaucracy. It also reveals how the utility function of an antitrust regulator such as the NDRC can influence its decision making in tackling central SOE cases. As regulation of telecom pricing is part of its designated responsibilities, antitrust intervention in this case could have helped the body enhance its policy control in the telecom sector. The final outcome of a settlement also appears to be a rational, utility-maximizing decision for the NDRC, as the compromise reached significantly reduced its cost in handling the case. From the standpoint of the NDRC, the marginal benefits of imposing high fines on these two companies rather than settling with them were low. By receiving their commitments to reduce telecom fees, the NDRC has largely achieved what it wanted--to not only retain existing powers, but also to expand its control of policy in telecom fee regulation.

D. Enforcement Against Local SOEs

As discussed in Part 11(B) above, the Chinese economy is highly decentralized. Law enforcement is no exception. As the number of staff responsible for antitrust enforcement at central ministries is extremely limited, the central government relies heavily on enforcers at the local level. This means local governments bear most of the burden of enforcing the law. Indeed, both the NDRC and SAIC have massive networks of corresponding bureaus at various levels of the regional governments. (148) In 2011 the NDRC added another 150 people to various local enforcement units, but the exact number of local staff allocated to antitrust enforcement remains unclear. (149) The NDRC and SAIC can delegate their enforcement responsibilities to local authorities (hereinafter DRCs and AICs respectively). (150) But the NDRC prefers to initiate investigations at the central level, unlike SAIC, which relies primarily on local authorities. (151)

Based on decisions disclosed by the NDRC and SAIC, the vast majority of cases have been initiated and enforced by local antitrust agencies. For instance, SAIC has publicly announced twenty decisions as of the end of 2014, all of which were initiated and investigated by local AIC agencies, with SAIC providing professional support. (152) But considering the large nationwide network of AIC agencies, this is hardly an impressive record. The enforcement pattern of local DRC authorities sheds similar light on the predicament of local enforcement. Subsequent to announcements by local agencies of some high profde cases (e.g., the Maotai and Wuliangye case and the Shanghai gold retailer case), insiders revealed that the NDRC in Beijing in fact had taken the lead behind the scenes. (153)

Notably, the AML devotes the entire Chapter V to addressing administrative abuse, specifically targeting local protectionist measures introduced by local administrative agencies erecting trade barriers to fend off competition from other regions. (154) However, the remedy for administrative abuse lacks teeth, as the antitrust enforcement agency could only make a proposal to the superior agency of the offending administrative agency to discipline the latter's behavior. (155) But even putting the weak remedy aside, the sad reality is that Chapter V has rarely been enforced since the AML came into force and has become mere window dressing. (156) So how do we explain the apparent lack of interest local AIC and DRC authorities have in prosecuting antitrust cases, whether directly against the SOEs or against the local governments? Answering this question requires close examination of the incentive structure of local enforcement agencies and the constraints they face in the CCP hierarchy.

To begin, like central enforcers, local AIC and DRC authorities view antitrust enforcement as an exciting new avenue for the pursuit of greater policy control. This is particularly the case for AIC authorities, as they share overlapping responsibilities with other government agencies and thus have grown increasingly concerned that other government departments are gradually encroaching upon their powers. (157) Antitrust enforcement is accordingly perceived as a potential new source of policy control for AIC authorities and local governments. Notably, in some jurisdictions local governments deem administrative fining as a revenue-generating business. (158) To incentivize administrative agencies to generate more fining revenue, these local governments link salaries and bonuses to the amount of fines they receive. (159)

At the same time, local enforcers also face severe constraints in enforcing antitrust law against SOEs. Because the local governments control their budgets and personnel appointments, local enforcers are careful to ensure that their antitrust enforcement efforts do not run against the interests of the local governments. Because regional monopolies are often deemed local champions that substantially contribute to the local GDPs, they can seek shelter from the local governments. This explains why those cases initiated by local AICs and DRCs tend to involve small rather than large local SOEs--with the exception of those cases in which the central agencies actively intervened (e.g., the Maotai and Wuliangye case).

By contrast, central enforcers such as the NDRC and SAIC do not face similar constraints from local governments in prosecuting local SOEs. As they are higher in the political pecking order, their administrative control is not subject to local government. The amount of political opposition they face is thus much lower than for local AICs and DRCs. This is especially the case for the NDRC, which prefers to initiate investigation at the central level rather than entirely relying upon local authorities. (160) That said, the capacity of both agencies is very limited and consequently they are incapable of handling all of these regional cases on their own. (161) Barring active intervention by the central enforcers, antitrust enforcement against regional monopolies is unlikely to be successful.

E. Shanghai Gold Retailer Case

On August 13, 2013, the NDRC announced that the Shanghai Price Bureau, a regional authority of NDRC (hereinafter Shanghai DRC), had imposed a total fine of RMB 10 million on Shanghai Gold and Jewellery Association and five gold retailers for fixing the prices of gold and platinum. (162) The news caused a stir among the public, as the retailers involved, including Lao Feng Xiang, Cheng Huang Zhu Bao, Tian Bao Long Feng, Lao Miao Huang Jing and Ya Yi Huang Jing are all long-established companies whose products are highly regarded and trusted among consumers. Despite widespread media coverage, few noticed that these five retailers were initially all SOEs controlled by the Shanghai government. While the majority control of Lao Miao Huang Jing and Ya Yi Huang Jing was transferred to Fosun in 2002, a large privately owned domestic firm, the control of the other three retailers remains in the hands of the Shanghai government. (163)

According to the NDRC's announcement, Shanghai Gold and Jewellery Association imposed an industry price control measure to limit fluctuations in the retail prices of gold and platinum set by its members within a certain range. (164) What is omitted in the NDRC's official announcement, however, is the fact that Shanghai DRC has been aware of such price fixing arrangement among these retailers for more than a decade. (165) In December 2001, Shanghai DRC found that the price control measure among a group of eleven jewellery retailers (including those involved in this case) was in fact a price alliance that had violated the Price Law, a consumer protection law with a few antitrust provisions outlawing cartels. (166)

According to a news report, Shanghai DRC issued an administrative warning to these firms and ordered them to rescind their activities immediately. (167) Curiously, no fines were imposed, even though the Shanghai DRC could have imposed a fine of up to five times the illegal gains under the Price Law. (168) Two months later, the Shanghai Gold and Jewellery Association made a petition on behalf of the jewellery retailers to the Shanghai government and applied for administrative reconsideration of the penalty decision. (169) The Shanghai government ruled in favor of the trade association and revoked the decision made by the Shanghai DRC. (170) No subsequent action was taken by Shanghai DRC. (171) In fact, NDRC took the lead in the 2013 investigation behind the scenes, even though on the surface the official decision was issued by Shanghai DRC. (172)

Another omission in NDRC's announcement, which was later revealed in the press and confirmed by the author's interview, is that Shanghai DRC's investigation focused primarily on the discussion of platinum prices in November 2011. (173) Instead of raising prices, however, it appears that the association was trying to persuade its members to lower the price for platinum, because the raw material costs of gold were cheaper than those of platinum. (174) If this was indeed the case, then the actions of the trade association are distinctly reminiscent of governmental control during the planned era. Even though the government has now abolished price control, there was clearly no meaningful competition among these SOEs.

NDRC's official announcement of this case-the only public disclosure of its investigation and decision-contains a mere 552 words. The opacity of the decision leaves many important questions unanswered. Nonetheless, what is known is disturbing.

First, the privatization reform carried out in the late 1990s and early 2000s is far from complete. (175) In this case, though the Shanghai government sold off some its gold retailing interest in early 2000s, it maintains control through three other firms. Gold retailing is hardly a unique example. Indeed, a close look at the assets held by the Shanghai SASAC reveals that the Shanghai government continues to hold assets in a wide range of highly competitive industry sectors such as food, textiles, hotels, fishing, construction, retailing, and grocery markets. (176)

Second, this case offers a stark example of the constraints a local antitrust authority faces in prosecuting cases against local SOEs. While Shanghai DRC could impose a fine on these firms according to the Price Law, it chose not to do so, instead requesting only that the firms rectify their behavior. Since all five gold retailers were owned by the Shanghai government at that time, Shanghai DRC faced significant constraints in bringing action against these SOEs. This explains the relatively lenient approach Shanghai DRC took, similar to NDRC's settlement with China Telecom and China Unicom. Meanwhile, the SOEs did not hesitate to seek shelter from the Shanghai government by making a formal request for administrative reconsideration, and ultimately won the case. According to a news report, Shanghai DRC tolerated the price alliance for more than a decade because the trade association won the endorsement of the Shanghai government. (177) Until NDRC actively got involved in this case, Shanghai DRC did not dare to act on its own.

Last but not least, this case also shows how the opacity of administrative enforcement, coupled with the absence of judicial review, makes it impossible to evaluate the merits of an agency's action. While it is likely that these SOEs had colluded to raise prices for gold to the detriment of consumers, it is not entirely clear whether Shanghai DRC successfully obtained such evidence. Cartels are often secretive and firms are careful not to leave traces behind. Based on the news report and an interview with a lawyer involved in this case, it appears that the main evidence NDRC had gathered was that the trade association and the retailers organized a meeting to adjust downward the price for platinum in late 2011. NDRC did not explain why the proposed price reduction, even though coordinated, infringes on the AML. This may explain why the chairman of the trade association was so indignant at NDRC's investigation that he initially contemplated appealing the decision before ultimately relented. (178)


The Chinese economic system has undergone significant transformation in the past few decades. Politically China remains a communist country controlled by a single ruling party-the CCP. But economically it has embraced capitalism. As soon as "the market" was introduced as a controlling mechanism into economic policy, prices began to be liberalized and greater autonomy was granted to SOEs in making operational decisions. In light of these changes, it is neither feasible nor desirable for the State to keep SOEs on a tight leash.

Repeated restructuring and reform of SOEs has resulted in a competitive landscape where SOEs now play a heterogeneous economic role. Contrary to the popular perception that all SOEs are monopolies, today the vast majority of SOEs operate in competitive sectors and compete head-to-head with non-state firms. However, local protectionism fragments the Chinese market into smaller segments, thus creating the market conditions conducive to the rise of cartels at the regional level. SOEs in the regulated sectors continue to be a significant source of monopoly. While SOEs that operate in the basic infrastructure segments continue to enjoy monopoly power, competition exists in the upstream or downstream segments. This creates competitive tension between vertically integrated SOEs and those operating solely in the competitive segments, thus creating demand for SOEs to regulate their state-owned rivals.

Meanwhile, the efforts of Chinese antitrust agencies are largely unobservable to outsiders due to the opacity of enforcement and a near absence of judicial supervision. This gives rise to agency problems, enabling them to focus on seeking benefits for themselves rather than maximizing consumer welfare. Indeed, from the perspective of the Chinese bureaucrats, the main benefit to be achieved through antitrust enforcement is enhancement of their control of policy within their original designated areas of responsibility. As Chinese antitrust enforcement is a highly pluralistic process involving government officials from various central ministries and multiple layers of government, particular organizational missions and objectives have a significant impact on how the AML is enforced in relation to SOEs.

However, Chinese enforcement agencies are not free from constraints. As many large SOEs have relatively easy access to lobby the relevant government departments, the main battle Chinese administrative agencies face in tackling SOE cases is fought within the bureaucratic hierarchy rather than in courts. Thus the political pecking order of the enforcement targets vis-a-vis the regulators is an important determinant of the cost Chinese antitrust agencies face in enforcing the AML.

To be sure, applying the AML to SOEs as it would to non-state firms is consistent with the basic corporate governance principle of "competitive neutrality," ensuring SOEs compete on a level playing field with non-state firms. (179) But the desire to do so itself exposes the weakness of ex ante state control of SOEs. If such control is effective, there will be no room for antitrust law. Antitrust law was originally created to remedy problems arising from free market competition, but in China it has been applied to address institutional problems arising from local protectionism and dominance of SOEs. These problems presumably could be resolved more effectively by removing local barriers to entry, introducing genuine competition into the regulated sectors, and imposing effective sector regulation. But they persist because their existence is rooted in the unique Chinese political and economic context. As long as the performance of regional governments is evaluated by factors such as GDP growth, they will continue to face incentives to erect regional trade barriers in order to protect their own businesses and to outperform other regions. (180) At the same time, GDP has also proven to be the most useful indicator the Chinese leadership has employed to motivate the local governments to perform. (181) As a consequence, regional trade barriers have become a necessary by-product of China's stellar economic growth and there appears to be no way out.

Another obstacle China faces in enforcing the AML is the lack of an independent and effective judiciary. (182) In February 2015, the China's Supreme People's Court announced a comprehensive five-year plan to improve judicial independence, transparency and professionalism in China. (183) On paper these ambitious reform measures seem to be a hopeful sign that the Chinese judiciary could provide an effective check on government agencies. But the CCP's authoritarian control casts doubt on their independence, and "those reforms will be limited according to the Party's interest." (184) As Lubman comments, "meaningful progress remains a distance goal." (185)

At the Third Plenum of the 18th Party Congress of the CCP in 2013, the Chinese leadership decided that the market would play a "decisive" role in allocating resources in the economy. (186) It further stated that "both public and nonpublic ownership are key components of China's socialist market economy." (187) These statements send strong signals that the Chinese government will be committed to a further round of privatization reform, though its scale and scope remain unclear. Competitive SOEs owned by the local governments are likely the first target for reform, although there are also signs that central government is reducing its holdings of certain SOEs in regulated sectors. (188) That said, the reduction of equity interest in SOEs, particularly those in regulated sectors, does not necessarily weaken State control. In fact, the State could even be able to leverage its limited financial resources to achieve greater corporate control. (189) Indeed, as long as the Chinese government continues to adhere to a socialist ideology, state ownership will remain "first among equals" in the Chinese economy. (190) All the above suggests that the influence of the SOEs is here to stay and will continue play an important role in the Chinese economy.

In the meantime, the Third Plenum indicates that China will continue with price reforms in regulated sectors including water, oil, natural gas, electricity, transport, and telecommunications. (191) This seems to suggest that the Chinese government will further reduce ex ante control of SOEs and grant them more autonomy. If SOEs are given more room to run their business and to compete in the market, the demand for antitrust regulation should increase and thus further amplify the role of the AML. At the same time, the continuing liberalization of prices will diminish the power of bureaucratic departments such as those within the NDRC in charge of price regulation of SOEs. As policy control is deemed the lifeblood of a bureaucratic department, antitrust enforcement could then be viewed as a convenient substitute for its loss of policy control. This seems to indicate that the NDRC will be more likely to apply the AML against SOEs. But without independent and effective judicial supervision, public enforcement of the AML against SOEs is likely to be arbitrary and opportunistic, its success lying more in the outcome of bureaucratic contests than in contentious legal battles. This bodes ill for the new round of market reform. Taming the Chinese leviathan through antitrust law is unfortunately a false hope for future reform of Chinese SOEs.

(1) See Zhonghua Renmin Gonghcguo Fanlongduanfa [Anti Monopoly Law] (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30, 2007, effective Aug. 1, 2008), available at 02/10/contcnt_17254169.htm; see also H. Stephen Harris Jr., The Making of an Antitrust Law: The Pending Anti-Monopoly Law of the People 's Republic of China, 7 Chi. J. Int'l L. 169, 176-83 (2006) (providing a detailed account of the legislative history of the AML).

(2) Youngjin Jung & Qian Hao, The New Economic Constitution in China: A Third Way for Competition Regime?, 24 Nw. J. INT'L L. & Bus. 107, 111 (2003) (noting that competition was condemned by communist ideology, which labelled it "as the crux of capitalism's inferiority," and would "inevitably lead to economic monopoly and political oppression").

(3) In a seminal paper, economists Grossman and Hart define ownership as the power of the owner to exercise residual rights of control. See Sanford J. Grossman & Oliver D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration, 94 J. POL. ECON. 691 (1986). Thus, the State as an owner should always have the ability to intervene in the decision-making of the SOEs, as long as it has not contracted out such rights to third parties.

(4) For example, sector regulations in utility, water, and energy are a common means of an ex ante government regulation in many countries, including China. Those firms subject to ex ante regulation tend to be natural monopolies whose cost and revenue structure are carefully scrutinized and regulated to prevent them from reaping monopoly profits.

(5) See Curtis J. Milhaupt & Wentong Zheng, Beyond Ownership: State Capitalism and the Chinese Firms, 103 GEO. L. J. (forthcoming 2015), available at (citing the recent antitrust investigation into Maotai and Wuliangye--two large local SOEs--as an example of the State intervening in pricing policies not as a controlling shareholder, but as an antitrust law enforcer).

(6) Not surprisingly, during the legislative process, SOEs fiercely opposed the adoption of the AML, fearing that their managerial discretion and the privileges they had obtained through close government connection could be jeopardized by the new law. See David J. Gerber, Economics, Law & Institutions: The Shaping of Chinese Competition Law, 26 WASH. U.L.J. & POL'Y 271, 283 (2008). But leading scholars such as Xiaoye Wang firmly endorsed the application of the AML to SOEs. See Xiaoyc Wang, The Prospect of Antimonopoly Legislation in China, 1 WASH. U. GLOBAL STUD. L. Rev. 201,216 (2002) (noting that "[bjrcaking up the monopolies of state-owned enterprises will improve the state's macro-control over the economy").

(7) Zhonghua Renmin Gonghcguo Fanlongduanfa [Anti-Monopoly Law] (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30, 2007, effective Aug. 1, 2008), art. 7 ("With respect to the industries controlled by the State-owned economy and concerning the lifeline of national economy and national security or the industries implementing exclusive operation and sales according to law, the State protects the lawful business operations conducted by the business operators therein. The state also lawfully regulates and controls their business operations and the prices of their commodities and services so as to safeguard the interests of consumers and promote technical progresses. The business operators as mentioned above shall lawfully operate, be honest and faithful, be strictly self-disciplined, accept social supervision, shall not damage the interests of consumers by virtue of their dominant or exclusive positions."); see also Eleanor Fox, An AntiMonopoly Law for China: Scaling the Walls of Government Restraints, 75 Antitrust L.J. 173, 178--79 (2008) (discussing the ambiguity of art. 7 of the AML).

(8) At the 14th National Congress of the Communist Party in 1992, the Chinese government made the official declaration that China would build a "socialist market economy." Since then, the Chinese government has gradually liberalized its market and retreated from applying direct bureaucratic control to govern its economy and the SOEs.

(9) See Andrew Batson, Paulson Inst., Fixing China's State Sector 1 (2014), available at (noting China has 100,000 SOEs with a combined assets of roughly 13 trillion USD).

(10) See Sheng Hong & Zhao nong, China's State-Owned Enterprises: Nature, Performance and Reform 123-24 (2013) (criticizing the performance of SOEs and finding that SOEs play a negative role in income distribution); see also YASHENG HUANG, SELLING CHINA (2003) (arguing that China's large absorption of foreign direct investment is partly due to the distorted Chinese economy that allocates economic resources to the less efficient SOEs rather than more efficient private enterprises).

(11) World Bank & Dev. Research Ctr. of the State Council, China 2030: Building a Modern, Harmonious, and Creative High-Income Society 109-12 (2012) [hereinafter World Bank Report], available at

(12) Id. at 110.

(13) The problem of collective action among large groups such as widely dispersed consumers has long been observed by Olson. See generally MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: Public Goods and Theory of Groups (1965).

(14) See CCTV, Fagaiwei Zheng Diaocha Zhongguo Dianxin He Zhongguo Liantong Shexian Longduan M[The NDRC Is Investigating the Broadband Monopoly Issues of China Telecom and China Unicom], XlNLANG CAIJING (Iff 'l&MH) [SINA FIN.] (Nov. 9,2011),

(15) Sichuan Fagaiwei (PR)11$ic&l?) [Sichuan Development and Reform Commission], Wuliangye Gongsi Shishi Jiage Longduan Bei Fa Chu [sic] 2.02 Yi Yuan ([Wuliangye Conducted Price Monopoly and Was Fined RMB 202 Million], SCDRC.GOV.CN (Feb. 22, 2013),; Guizhoushcng Wujia Ju [Guizhou Price Bureau], Guizhou Wujia Ju Guanyu Maotai Fanlongduan de Chufa Gonggao [Guizhou Price Bureau's Announcement Regarding the Maotai Case Antitrust Punishment], WANGYI CaijinG [NetEase Fin.] (Feb. 22, 2013), available at

(16) NDRC, Shanghai Huangjin Shipin Hangye Xiehui Ji Bufen Jin Dian Shishi Jiage Longduan Bei Yifa Chachu [Shanghai Gold & Jewelry Trade Association and a Number of Gold Retailers Were Fined for Carrying Out PriceFixing], SDPC.GOV.CN (Aug. 13, 2013) [hereinafter Shanghai Gold Retailer Case], available at

(17) NDRC, Hubei Sheng Wujia Ju Yifa Chachu Wuchang Yan Ye Fengongsi Qiangzhi Da Shou Anjian [Hubei Price Bureau Investigated Wuchang Salt Company 's Forced Tying Case], SDPC.GOV.CN (Nov. 15, 2010), available at

(18) NDRC, San Jia Shuini Qiye Shishi Jiage Longduan Bei Fakuan A4 Yi Yuan [Three Cement Companies Were Fined RMB 114 million for Conducting Price-Fixing], NDRC.GOV.CN (Sept. 9, 2014),

(19) NDRC, Zhejiang Baoxian Hangye Weifan Fanlongduanfa Bei Chu IA Yi Yuan Fakuan [Insurance Companies in Zhejiang Were Fined RMB 110 Million for Violation of the Anti-Monopoly Law], NDRC.GOV.CN (Sept. 2, 2014),

(20) Hubei Province Price Bureau, Yiqi-Dazhong Xiaoshou Youxian Zeren Gongsi Ji Bufen Aodi Jingxiaoshang Zai Hubei Sheng Shishi Jiage Longduan Bei Chachu [FAW-Volkswagen Automobile Co., Ltd. And Some Audi Dealers Were Penalized for Conducting Price Fixing in Hubei Province], JIA JlAN FEN Ju (bM&iJMi) [PRICE SUPERVISION BUREAU] (Sep. 26, 2014), (noting FAW-Volkswagen Automobile Co., Ltd. is a joint venture between FAW Group, a SOE owned by Shanghai government, and Volkswagen Group but FAW Group maintains the majority control in the joint venture).

(21) Gongshang Zongju Jingzhcng Zhifa Ju [SAIC Anti-Monopoly Bureau], Liaoningsheng Jianzhu Cailiao Gongye Xiehui Zuzhi Ben Hangye Jingyingzhe Congshi Longduan Xie Yi'an [Liaoning Building Materials Industry Association Organized Industry Business Executives to Conduct Monopoly Agreements], Jingzhcng Zhifa Gonggao 2013 Nian Di 4 Hao [Competition Law Enforcement 2013 No. 4 Release], SAIC.GOV.CN (July 26, 2013),

(22) Gongshang Zongju Jingzheng Zhifa Ju [SAIC Anti-Monopoly Bureau], Guanyu Nei Menggu Zizhiqu Yancao Gongsi Chifcngshi Gongsi Lanyong Shichang Zhipei Diwei Xingwei de Chufa Jueding [Decision regarding the Penalty on the Abuse of Dominant Behavior of Tobacco Company in Chifeng, Nei Menggu Municipality], Jingzheng Zhifa Gonggao 2014 Nian Di 15 Hao [Competition Law Enforcement 2014 No. 15 Release], SAIC.GOV.CN (July 26, 2013),; Gongshang Zongju Jingzhcng Zhifa Ju [SAIC Anti-Monopoly Bureau], Jiangsu Xuzhoushi Yancao Gongsi Pizhou FenGongsi Lanyong Shichang Zhipei Diwei An [Decision regarding the Abuse of Dominant Behavior of Tobacco Company's Pizhou Subsidiary in Xuzhou, Jiangsu Province], Jingzhcng Zhifa Gonggao 2014 Nian Di 18 Hao [Competition Law Enforcement 2014 No. 18 Release], SAIC.GOV.CN (Oct. 31, 2014),

(23) See Yuni Yan Sobcl, Domestic-to-Domestic Transactions--A Gap in China's Merger Control Regime, ANTITRUST SOURCE 4 (2014). According to Yan, of the 57 domcstic-to-domestic merger transactions notified to the Ministry of Commerce (MOFCOM) during the period of August 1, 2008 to December 31, 2013, at least 26 of involved SOEs. But Yan's analysis does not include forcign-todomestic transactions; for instance, General Electric/Shenhua was notified to MOFCOM and the deal is a forcign-to-domcstic transaction.

(24) MOFCOM, Guanyu Fu Tiaojian Pizhun Tongyong Dianqi Zhongguo Youxiangongsi Yu Zhongguo Shenhua Meizhiyou Huagong Youxiangongsi Shell Heying Qiye Fanlongduan Shencha Jueding de Gonggao, [Announcement Regarding the Conditional Approval of the Merger Clearance Decision of General Electric China Limited and China Shenhua Coal to Liquid and Chemical Co., Ltd.], Shangwubu Gonggao 2011 Nian Di 74 Hao [MOFCOM 2011 Announcement No. 74], MOFCOM.GOV.CN (Nov. 10, 2011), available at

(25) Kazunori Takada, China Could Target Oil Firms, Telecoms, Banks in Price Probes, REUTERS (Aug. 15, 2013, 11:38 AM),

(26) Interview with officials working at the NDRC and SAIC. The interviewees wish to remain anonymous. Note under the AML, except for merger enforcement, enforcement agencies can disclose the antitrust cases they investigated but are not obligated to do so. See Zhonghua Renmin Gongheguo Fanlongduanfa [Anti-Monopoly Law] (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30, 2007, effective Aug. 1, 2008), art. 44.

(27) One reason noted, however, is that some SOEs insist that their cases be kept undisclosed for fear that bad publicity would harm their reputation and have negative repercussions for their stock performance (as many of them are listed on domestic or foreign stock exchanges). This position is dubious. A listed company has the mandatory obligation to disclose material information to its stockholders. If an antitrust investigation is likely to influence its stock price, it should be deemed material information that must be disclosed.

(28) George J. Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. SCI. 3 (1971).

(29) Id.

(30) Id.

(32) Sam Peltzman, Toward A More General Theory of Regulation, 19 J. L. & ECON. 211, 211 (1976).

(33) Id.; see also Richard A. Posner, Theories of Economic Regulation, 5 Bell J. ECON. & Mgmt. SCI. 335, 344(1974).

(35) Barry Naughton, The Chinese Economy: Transitions and Growth 92 (2006).

(36) Gang Xiao et al., State-Owned Enterprises in China, Reform Dynamics and Impact, in China's New PLACE IN A WORLD IN Crisis 155, 157 (Ross Gamaut et al. eds., 2009). However, this system failed as managers tended to pursue short-term interests at the expense of long-term profits since they did not hold residual control rights.

(37) COASE & WANG, supra note 34, at 124.

(38) Id.

(39) OECD, OECD Reviews of Regulatory Reform: China--Defining the Boundary BETWEEN THE MARKET AND THE STATE, 123-24 (2009).

(40) See NAUGHTON, supra note 35, at 301. For an overview of China's corporate governance structures under the Company Law see Donald C. Clarke, Corporate Governance in China: An Overview, 14 CHINA ECON. REV. 494, 494 (2003). The conversion of SOEs into corporate entities, however, remains a work in progress. See OECD, supra note 39, at 43.

(41) It should be noted, however, that not all Chinese SOEs are supervised by SASAC. For example, state-owned financial institutions are supervised by the China Banking Regulatory Commission, China Insurance Regulatory Commission, and China Securities Regulatory Commission. There are also SOEs whose supervisory authorities are in individual central government ministries outside the SASAC, such as the Ministry of Commerce, Ministry of Education, Ministry of Industry and Information Technology, etc.

(42) See Angela Huyue Zhang, The Single Entity Theory: An Antitrust Time-Bomb for Chinese State-Owned Enterprises?, 8 J. COMP. L. & ECON. 805, 813 (2012).

(43) See Barry Naughton, The State Asset Commission: A Powerful New Government Body, 8 China leadership Monitor 1, 3 (2003), available at

(44) See Milhaupt & Zheng, supra note 5, at 17-24 (demonstrating that the state collects little or no dividend from SOEs, lacks control in executive compensation, fails to make major operational decisions at SOEs, and influences their behavior principally in its role as a regulator rather than an investor).

(45) Angela Huyue Zhang, Foreign Direct Investment from China: Sense and Sensibility, 34 NW J. INT'L L. & BUS. 395, 440-50 (2014) (finding that empire-building incentives, exacerbated by weak corporate governance structures and the lack of financial disclosure, make it highly likely that state assets are squandered in overseas acquisitions).

(46) Kjeld Erik Brodsgaard, The Politics and Business Group Formation in China: The Party in Control?, 211 CHINA Q. 624 (2012). Nomenklatura is the control mechanism that the Chinese communist party uses to manage the selection and appointment of government officials in China. For a detailed description, see Hon S. Chan, Cadre Personnel Management in China: The Nonmenklatura System, 1990-1998, 179 CHINA Q. 703, 703 (2004).

(47) This misconception partly has to do with availability heuristics, as central SOEs tend to appear in the headlines of western media in stories emphasizing their meteoric rise or global ambitions (in the form of aggressive overseas expansion). "Availability heuristics" refers to the process through which people judge the frequency of an event by the ease with which instances can be brought to mind. See Daniel Kahneman & Amos Tvcrsky, Judgment Under Uncertainty: Heuristics and Biases, 185 SCI. 1124, 1127(1974).

(48) Andrew Szamosszegi & Cole Kyle, An Analysis of State-Owned Enterprises and State Capitalism in China 26 (2011), available at For instance, while Chinese statistics indicate that SOEs exceeded 100,000 in 2010, the number of SOEs controlled by the central government was only 120 that year. Regional governments controlled all the remaining numbers.

(49) When the State Asset Supervision and Administration Commission (SASAC) was established in 2003, it supervised 196 companies. This number fell to 152 in 2007; it currently only supervises 113 companies. See SASAC, Yang Qi Minglu [The List of Central SOEs], available at; see also Barry Naughton, SASAC and Rising Corporate Power in China, 24 CHINA LEADERSHIP MONITOR 1, 2 (2008), available at

(50) In response to the deteriorating performance of SOEs, Chinese leaders conducted a massive comprehensive overhaul of the SOE sector in the early 1990s. They first privatized a large number of loss-making small-and medium-sized SOEs, and then conducted extensive restructuring of the remaining larger SOEs. See OECD, supra note 39, at 42.

(51) Id. According to OECD, the number of SOEs fell by 60% between 1995-2001. The decline continued: In 2006, the number of SOEs fell by another 50%.

(52) See YASHENG HUANG, Selling China 340-41 (2003) (finding that although the privatization of SOEs accelerated after 1997, the government has not supported the privatization of large SOEs and thus the size of the state sector has not declined in absolute terms).

(53) Charles Goodhart & Chcnggang Xu, The Rise of China as an Economic Power 15 (Ctr. for Econ. Performance, Discussion Paper No. 299, 1996).

(54) See Gabriella Montinola et ah, Federalism, Chinese Style: The Political Basis for Economic Success in China, 48 WORLD POL. 50, 65 (1995).

(55) Huang, supra note 10, at 313.

(56) See OECD, supra note 39, at 124.

(57) See Shuini Hangye Zhao Difang Baohu, 10 Nian 38 Ge Wenjian Nan Jie Changneng Guoshemg [Ten Years' Local Protectionism in the Cement Industry, 38 Legislative Measures Failed to Solve Ovcrsupply], ZHONGGUO WANG (T'SIN) [CHINA Net] (Oct. 30, 2012), (demonstrating the limits of local protectionism in the cement industry--38 directives in 10 years could not solve problems of overcapacity).

(58) For instance, Jidong Cement and Yatai Cement, two of the largest cement manufacturers in China, are respectively owned by the Hebei province and the Jilin province. With the support of their respective local governments, both companies have expanded within their own region by acquiring smaller state-owned or private cement manufacturers in recent years. See, e.g., Shougou Jinyuan Shuini, Yatai Jituan Quyu Kuozhang Jiasu [Acquiring Jinyuan Cement, Yatai Quickens Regional Expansion], GUBA.COM (2013),,600881,60833240.html; Weixun Liu, Jidong Shuini Kuozhang Bianzhou, Cong Xinjian Channeng Dao Quyu Binggou [Jidong Cement Changed Expansion Method from Capacity Building to Regional Takeovers], JINGJI GUANCHA WANG [ECON. OBSERVER WEB] (2010),

(59) See HONG & NONG, supra note 10, at xv.

(60) WORLD BANK Report, supra note 11, at 112 (citing Sutherland and Ning's work comparing the evolution of industrial concentration in China with that of earlier periods in Japan and Korea and noting that Chinese industry concentration level is very low).

(61) See Bruce M. Owens ct al., China's Competition Policy Reform: The Anti-Monopoly Law and Beyond, 75 ANTITRUST L. J. 231, 247-52 (2008).

(62) See SAIC Anti-Monopoly Bureau, supra note 21.

(63) See NDRC, supra note 18.

(64) Telephone Interview with a government official working at a central ministry (March 6, 2014). The interviewee wishes to remain anonymous.

(65) Lecgin Creative Leather Prods, v. PSKS, Inc., 551 U.S. 877, 897-98 (2007) (listing a number of precompetitive reasons why firms want to impose resale price maintenance but noting two circumstances that could lead to anti-competitive harm--cartel and abuse of dominance--though each requires significant market power).

(66) Notably, this differs from the approach taken by a Shanghai court in a recent case involving alleged resale price maintenance conduct by Johnson & Johnson. There the Court explicitly incorporated economic principles in its deliberation and analysis. See Chunfai Liu & Stephenson Harwood, A Landmark Court Ruling in China: Resale Price Maintenance as Examined in the Johnson & Johnson Case, 2 COMPETITION POL'Y INT'L ANTITRUST CHRON. 1,4 (2013).

(67) For instance, in 2006, SASAC designated seven strategically important sectors over which it planned to maintain sole ownership or absolute control. The seven strategic industries are defense, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation, and shipping. See State Council, Guiding Opinion on Promoting the Adjustment of State-Owned Capital and the Reorganization of State-Owned Enterprises (2006). Notably, the State Council never ratified this document. See Szamosszegi & Kyle, supra note 48, at 33 (citing State-owned Enterprises in China: Testimony of Barry Naughton, 2011). Moreover, because the Opinion was issued by SASAC, it omits other important sectors (c.g., banking, tobacco) that are currently supervised by other central ministries.

(68) OECD, supra note 39, at 93 (noting the 1998 government restructuring reduced the number of central ministries from 40 to 29, trimming staff size by nearly half.).

(69) Id.

(70) Id. at 94.

(71) Notably, in the tobacco and salt sectors the Chinese government also grants exclusive rights of manufacturing and sale to state-owned monopolies. Moreover, in these two sectors the commercial operation remains closely integrated with administrative supervision, so the government's regulatory role has yet to be split from its ownership role. For instance, China National Tobacco Corporation is the only legally sanctioned SOE authorized to produce, sell, import, and export tobacco-related products in China. It is administered and supervised by the State Tobacco Monopoly Administration, now part of the Ministry of Finance. Similarly, the administrative bureau for salt in China also plays the role of owner, manager, and regulator. In 1996, the Chinese government promulgated the Measures for State Monopoly of Salt, which establishes that the State shall have a monopoly in salt and only competent authorities authorized by the State Council are responsible for administering the salt monopoly in China.

(72) See Wentong Zheng, Transplanting Antitrust in China: Economic Transition, Market Structure, and State Control, 32 U. PA. J. INT'L L. 643, 701 (2010).

(73) OECD, supra note 39, at 252.

(74) NDRC, Price Catalogue of the State Planning Commission and Related Ministries of the State Council (2001),

(75) OECD, supra note 39, at 69-70.

(76) Id. at 253.

(77) Id. at 22.

(78) Id

(79) Id. at 59-60.

(80) Id. at 236.

(81) See Kun-Chin Lin & Mika M. Purra, Transforming China's Electricity Sector: Institutional Change and Regulation in the Reform Era 19 (CPR Working Paper Series, Paper No. 8, 2012), available at

(82) See Grace Li, Can the PRC's New Anti-Monopoly Law Stop Monopolistic Activities: Let the PRC's Telecommunications Industry Tell You the Answer, 33 TELECOMM. POL'Y 360, 361-62 (2009).

(83) See Hanlong Fu & Yi Mou, An Assessment of the 2008 Telecommunications Restructuring in China, 34 TELECOMM. POL'Y 649, 651 (2010).

(84) See Xiaoye Wang, The China Telecom and China Unicom Case and the Future of Chinese Antitrust, in China's Anti-Monopoly Law: The First Five Years 467,469 (Adrian Emch & David Stallibrass eds., 2013) ("According to the data obtained by NRC's Price Supervision and AntiMonopoly Bureau, 95% of the international internet broadband connection, 90% of users of Internet broadband access and 99% of the Internet content providers obtained broadband access through China Telecom and China Unicom ").

(85) Id at 469-70.

(86) See, e.g., Zhongguo Dianxin Ye de Jingzheng Geju Bei Dapo [The Competitive Structure Is Broken in China's Telecom Industry], HUAXIA JINGWEI WANG [HUAXIA JlNGWEI Net] (last updated Apr. 26, 2001),

(87) This is regulated by MIIT, which provides that other fixed broadband operators must pay for an interconnection fee fixed to RMB one thousand Mb/Month. See Huliangwang Jiaohuan Zhongxin Jiesuan Banfa [The Method to Calculate Fees for Broadband Internet Interconnection], GONGYE HE XlNXI HUA Bu DIANXIN Guanli Ju [Telecom Mgmt. Bureau of the Ministry of Industry & Info. Tech, of the People's Republic of China], (last updated Nov. 30, 2007), 1293472/nl 1505629/nl 1506554/nl 1517270/nl 1919388/nl 1919927/120370 03.html.

(88) See Wang, supra note 84, at 470.

(89) Zhongguo Dianxin Weihe Zaoyu Fanlongduan Diaocha [Why Was China Telecom Subject to Antitrust Investigation], JlNGJI CANKAO Bao [ECON. REFERENCE NEWSPAPER] (last updated Nov. 11, 2011),

(90) Id

(91) Id.

(92) A news report suggests that China Railcom was the complainant of the NDRC's investigation into China Telecom and China Unicom. See Gongxin Bu Wang Tietong Quxiao Du Dianxin Liantong Jubao, Guangdian Zongju Chen Ying Cecha [The Ministry of Industry and Information Technology Hopes that China Railcom Withdraws Its Complaint About China Telecom and China Unicom, the State Administration for Radio, Film and Television Asks for Thorough Investigation], XINLANG CAIJING [SINA FIN.] (last updated Nov. 22, 2011),

(93) Id

(94) Xiaoye Wang & Adrian Emch, Fives Years of Implementation of China's Anti-Monopoly Law--Achievements and Challenges, 1 J. ANTITRUST ENFORCEMENT 247, 263-64 (2013) (noting the Chinese courts have handled more than one hundred civil antitrust cases, but in only two cases the plaintiffs prevailed).

(95) Angela Huyuc Zhang, The Enforcement of the Anti-Monopoly Law in China: An Institutional Design Perspective, 56 ANTITRUST BULL. 630, 657-58 (2011).

(96) Richard A. Posner, The Behavior of Administrative Agencies, J. LEGAL STUD. 305, 305 (1972).

(97) Id. at 306.

(98) Id.

(99) NDRC, Jiangsu Sheng Liangjia Lunninglu Qiye Bu Fu Fan Longduan Chufa Baisu [Two Cement Manufacturers in Jiangsu Province Lost their Appeal against the Antitrust Penalty Decision] (Dec. 8, 2014), available at .html.

(100) See, e.g., Susan Finder, Like Throwing an Egg Against a Stone: Administrative Litigation in the People's Republic of China, 3 J. CHINESE L. 1 (1989); Pei Minxin, Citizens v. Mandarins: Administrative Litigation in China, 152 CHINA Q. 832 (1992); Kevin O'Brien & Li Lianjiang, Suing the Local State: Administrative Litigation in Rural China, 51 CHINA J. 76, 75 (2005). For more recent works see Qihui Huang, Xingzheng Susong Yishen Shenpan Zhuangkuang Yanjiu [Research on Administrative Litigation at Courts of First Instance], 7 TSINGHUA L. J. 73 (2013); Chunhua Zhu, Xingzheng Susong Ershen Shenpan Zhuangkuan Yanjiu [Research on the Administrative Litigation at Courts of Second Instance], 7 TSINGHUA L. J. 86 (2013).

(101) He Haibo, Litigation Without a Ruling: The Predicament of Administrative Law in China, 3 Tsinghua China L. Rev. 257,258 (2011).

(102) Angela Huyuc Zhang, Bureaucratic Politics and China's Anti-Monopoly Law, 47 CORNELL INT'L L.J. 671, 678 (2014) (noting that as Chinese antitrust enforcement agencies are nested within central ministries that work like conglomerates, businesses fear retaliation not only from the particular department that handles their merger review or antitrust investigation, but also other departments within the ministries that may have policy control over other aspects of their businesses).

(103) Id.

(104) See HUANG, supra note 10, at 309.

(105) Brodsgaard, supra note 46, at 627.

(106) See HONG & NONG, supra note 10, at 186-89; see also Li, supra note 82.

(107) Id. at 188.

(108) See HONG & NONG, supra note 10, at xxiii.

(109) Id.

(110) Erica Downs & Michal Meidan, Business and Politics in China: The Oil Executives Reshuffles in 2011, 19 CHINA Security 6 (2011). Zhou Yongkang was arrested in late 2014 for corruption. See Philip Wen, Zhou Yongkang, China's Former Security Chief, Arrested and Expelled from Communist Party, SUNDAY MORNING HERALD (2014), available at zhouyongkang-chinas-former-security-chicf-arrested-and-expelled-from-communist-party-20141206-121oqf.htmk

(111) See Cheng Li, China's Midterm Jockeying: Gearing Up for 2012 (Part 4: Top Leaders of Major State-Owned Enterprises), 34 CHINA LEADERSHIP MONITOR 1,22 (2011).

(112) Id.

(113) See generally Richard A. Posner, A Statistical Study of Antitrust Enforcement, 13 J. L. & ECON. 365 (1970); Richard A. Posner, The Federal Trade Commission, 37 U. CHI. L. REV. 47 (1969).

(114) Susan L. Shirk., The Political Logic of Economic Reform in China 142 (1993).

(115) See Kenneth Lieberthal & Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes 9-14 (1988).

(116) See Victor Shih, Fachons and Finance in China: Elite Conflict and Inflation 5 (2009) (discussing the role of politics and factions in influencing China's financial policy). Note that while factions are officially prohibited within the CCP, abundant literature in Chinese politics identifies them as key to understanding political power in China. For more details on how the formation and maintenance of factions may influence the behavior of Chinese bureaucrats, see Zhang, supra note 102.

(117) See Shih, supra note 116, at 54.

(118) Telephone interviews with a government official at a central ministry (Jan. 6, 2014). The interviewee wishes to remain anonymous.

(119) Id.

(120) Dep't of Justice, 2014 Contingency Plan 12 (2013), available at (showing that the antitrust division at the DOJ has 619 employees on board and 246 employees excepted from furlough); FED. TRADE Comm'n, Inside the Bureau of Competition (2012), available at (noting the FTC has more than 300 employees).

(121) European Comm'n, Annex 2: Human and Financial Resources by ABB Activity (2013), available at

(122) See Zhang, supra note 102, at 681-82.

(123) See Lisa Zhou, Whistle Blowers Spur Vast Majority of Chinese Investigations, in POLICY AND Regulatory Special Report: ABA Antitrust In Asia 3 (2014), available at wp-content/uploads/2014/06/ABA-antitrust-in-asia-special-report.pdf (noting that at a recent conference held in Beijing, Xu Kunlin, the deputy director of the Price Supervision and AntiMonopoly Bureau publicly admitted that all of its investigations, excepting the Maotai and Wuliangye cases, were initiated upon complaints.).

(124) Zhang, supra note 102, at 651.

(125) Id. at 640-15.

(126) SHIRK, supra note 114, at 93.

(127) Id. at 98-99.

(128) NDRC, Main Functions of the NDRC,

(129) Lieberthal & Oksenberg, supra note 115, at 64.

(130) Id. at 72.

(131) Mission, MOFCOM (Dec. 7, 2010 10:14 AM)

(132) For instance, Huchcng Gao, MOFCOM's incumbent minister, recently published an enthusiastic piece on China Daily advocating for open markets. See Hucheng Gao, Zhongguo Yue Fazhan Jiu Yue Kaifang [China Becomes More Open as It Develops--Further Studying and Implementation of Comrade Xi Jingping's Important Statements on Overall Deepening Reform], CHINA DAILY (Dec. 9, 2013), available at .shtml.

(133) See Zhang, supra note 102 (finding that the majority of mergers reviewed by MOFCOM in the first five years involved foreign-to-foreign transactions).

(134) See Decree of the Ministry of Foreign Trade and Economic Cooperation, the State Administration of Taxation, the State Administration for Industry and Commerce and the State Administration of Foreign Exchange, Interim Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises, art. 6, (2003), available at

(135) Mission, SAIC,

(136) Since the NDRC has disclosed none of its evidence and the case has not been tested in court, this Article does not comment on the merits of the NDRC's investigation into the case. Leading Chinese scholars have different views on this case. See, e.g., Wang, supra note 84 (arguing that there is solid evidence showing that these two telecom firms abused their dominant positions). Cf. Xinzhu Zhang, Dianxint Fanlongduan An Fansi: Changquan Gaige Shi Nan Yi Yuyue Hong Gou [Reflections on China Telecom Antitrust Case: The Reform of Property Rights is the Impossible Chasm], XINLANG CAIJING [SINA FIN.], (Dec. 13, 2011), (arguing that the NDRC's allegation that the two telecom firms conducted price discrimination without reasonable justification lacks legal and economic support).

(137) Gong Xing Bu Xiashu Liangjia Meiti Bo Dianxing Liantong Shexian Longduan Baodao [Two MUT Newspapers Rebutted the Report on the Alleged Abuse of Dominance by China Telecom and China Unicom], Xin Jing Bao Wang [Xin Jing Bao Net] (Nov. 12, 2011),

(138) Dianxin Liantong Shenqing Zhongzhi Longduan Diaocha China Telecom and China Unicom Applied for Suspension of Antitrust Investigation, RENMING WANG [People's Net] (Dec. 2, 2011), available at 0. shtml.

(139) See Wang, supra note 84, at 478-86.

(140) OECD, supra note 39, at 66.

(141) See HONG & NONO, supra note 10, at 278-79.

(142) See generally Yukyung Yeo, Between Owner and Regulator, Governing the Business of China's Telecommunication Service Industry, 200 China Q. 1013 (2009).

(143) Posner, supra note 33, at 339.

(144) For instance, China Telecom proposed that it would: (1) expand capacity with other backbone network operators such as China Unicom, China Railcom, etc. in a timely manner; (2) lower the price for direct connection with China Railcom, and further improve the interconnection quality to achieve sufficient interconnection; (3) further standardize the management of dedicated internet access charges, deal fairly in accordance with market principles and sort out the existing agreements to appropriately lower the current charge benchmark; and (4) greatly enhance the penetration of fiber access and broadband access rates, reduce the unit bandwidth price for internet users by 35% within five years, and commence implementation without delay. China Unicom has made similar commitments. See Dianyin He Liantong Chengnuo Jiang Zhenggai, Dianxin Chen Wunian Nei Daikuang Jiangjia 35% [China Telecom Promises Rectification, China Telecom Claims Broadband Prices Will Reduce 35%), GUANGZHOU Ribao [Guangzhou Daily] (Dec. 3, 2011), available at;_iee also Wang, supra note 84, at 478-79.

(145) See Wang, supra note 84, at 479-80.

(146) Id. at 480.

(147) Telephone interview with a lawyer involved in this case (April 30, 2014). The lawyer wishes to remain anonymous.

(148) While MOFCOM also has corresponding bureaus at the provincial level, those provincial bureaus are not in charge of merger review.

(149) Tianxiang Huang, Jiage Jiangnan Jigou Luxu Jiepai Shifang Qianghua Jiangnan Xinghao [Price Supervision Authorities Are Sending Signals to Strengthen Regulation], ZHONGGUO GAIGE BAO [China Reform] (Jan. 4, 2013),

(150) Note that some of the local corresponding offices of the NDRC are called price bureaus. But for simplicity we refer to all local authorities of the NDRC as DRCs.

(151) Lisha Zhou & Rebecca Zhang, Shortage of Manpower is NDRC's Biggest Challenge in China, in Policy and Regulatory Special Report: ABA Antitrust In Asia 19 (2014), available at

(152) SAIC's decisions have been disclosed on its website:

(153) Telephone interview with a government official at a central ministry (Jan. 6, 2014). The official wishes to remain anonymous.

(154) See Zhonghua Renmin Gongheguo Fanlongduanfa [AntiMonopoly Law] (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30, 2007, effective Aug. 1, 2008j, arts. 32-35, available at 7254169.htm.

(155) See id. art. 51.

(156) See Xu Shiying & Zhang Baisha, Judicial and Administrative Remedies Against Administrative Monopoly: Cases and Analysis, in CHINA'S ANTI-MONOPOLY LAW: The FIRST FIVE YEARS 274-85 (reviewing the enforcement record and finding only one successful case lodged by private citizens against administrative abuse under the AML; in other cases such complaints were either dismissed or withdrawn). The actual enforcement pattem contradicts sharply with the optimistic prediction by some legal scholars. See generally Salil K.. Mehra & Yanbei Meng, Against Antitrust Functionalism: Reconsidering China's Antimonopoly Law, 49 VA. J. INT'L L. 379 (2009) (predicting that the enforcement against local restraints under the AML could still be successful despite China's lack of basic legal infrastructure).

(157) See Zhang, supra note 102, at 704.

(158) Id.

(159) Id.

(160) See Zhou & Zhang, supra note 151, at 19.

(161) Id. (noting that Xu Kunlin, the deputy director of the Price Supervision and the AntiMonopoly Bureau at the NDRC, is keen to expand his bureau, but his biggest challenge in antitrust investigation is a shortage of manpower).

(162) Shanghai Gold Retailer Case, supra note 16.

(163) Yuyuan Shang Cheng [Yuyuan Tourist Market], available at (noting that Fosun became in 2002 the largest shareholder of Yuyuan Tourist Market, which now owns Ya Yi Huang Jing and Lao Miao Huang Jin); Lao Feng Xiang Ni Quan Zi Shougou Chenghuang Zhubao (Lao Feng Xiang Is Planning to Acquire Chenghuang Zhubao), DF DAILY.COM (Oct. 20, 2014), available at http://www.dfdaily.eom/html/136/2014/10/20/l 195416.shtml

(164) Shanghai Gold Retailer Case, supra note 16.

(165) Shujuan Ma, Shanghai Jing Jia Longduan Zhi Xian Beihou De Xiehui Mciying [The Trade Association Behind the Price Fixing of the Gold Retailers], Fazhi Zhoumo [Legal Weekend] (July 30, 2013), available at

(166) Id.; see also Jiage Fa [Price Law] (promulgated by the Standing Comm. Nat'l People's Cong., Dec. 29, 1997, effective May 1, 1998) 1997 Standing Comm. Nat'l People's Cong. Gaz., 7: l/content_1383577.htm (P.R.C); The Price Law of the People's Republic of China, promulgated by the Standing Comm. Nat'l People's Cong., Dec. 29, 1997, effective May 1, 1998), available at (noting that art. 14 (1) of the Price Law prohibits price fixing among undertakings).

(167) Ma, supra note 165.

(168) See art. 40 of the Price Law, supra note 166.

(169) Ma, supra note 165.

(170) Id.

(171) Id.

(172) Telephone interview with a lawyer involved in the case (December 10, 2013). The interviewee wishes to remain anonymous.

(173) Id.; see also Ma, supra note 165.

(174) Id

(175) Batson, supra note 9 (noting that because privatization reform was halted in 2003, a large portion of state assets in non-strategic sectors could not be sold off).

(176) [TEXT NOT REPRODUCIBLE IN ASCII] Shi Guo Zi Wei Guanli Danwei Mingdan [The List of Companies Managed by Shanghai SASAC] (Dec. 2014), available at

(177) Ma, supra note 165.

(178) NDRC's case handler, Xinyu Xu, described the obstacles he met in handling this case, noting that the chairman of the association hit the table when he first met him. Fazhi Ri Bao [LEGAL DAILY ](August 27, 2013), available at 22733484.html; this is also confirmed by a telephone interview with a lawyer involved in the case (December 10, 2013). The interviewee wishes to remain anonymous. See Fa Gai Wei Tan Fan Longduan Kunjing [NDRC Describes the Dilemma It Faces During Antitrust Enforcement],

(179) Antonio Capobianco & Hans Christiansen, Competitive Neutrality and State-Owned Enterprises: Challenges and Policy Options, (OECD Corporate Governance Working Papers Series No. 1 2011), available at http://www.oecd ilibrary .org/docscrvcr/download/5kg9xfgjdhg6.pdf?cxpircs= 1405612022&id=id&accnamc=guest&chc cksum=B44D93712A86C630BD1ED97361B085D0.

(180) See Chenggang Xu, The Fundamental Institutions of China's Reforms and Development, 49 J. ECON. Literature 1076, 1098-1107 (2011) (discussing regional competition and the fragmentation of the Chinese economy).

(181) Id.

(182) See Jeremy A. Cohen, China's Legal Reform at the Crossroads, Far Eastern ECON. Rev (2006), available at http://www.cfr.Org/china/chinas-lcgal-reform-crossroads/p 10063.

(183) Susan Finder, Supreme People's Court's 4th Five Year Reform Plan sees the light of day, SUPREME Court Monitor (2015), supremepeoplcs-courts-4th-five-year-reform-plan-sccs-thc-light-of-day/.

(184) Stanley Lubman, Questions Loom Over China's Legal Reform Drive, WALL St. J. (Mar. 17, 2015), available at; see also Paul Gewirtz, What China Means by 'Rule of Law,' N.Y. TIMES (Oct. 19, 2014), available at

(185) Id.

(186) See Decision on Major Issues Concerning Comprehensively Deepening Reforms [hereinafter The Decision], CHINA Daily (Nov. 16, 2013), available at l/16/content_30620736.htm.

(187) Id.

(188) China SOE Regulator's Plan Suggests Reform Progress, REUTERS (July 17, 2014), http://www.reuters.eom/article/2014/07/17/fitch-china-soe-regulators-plan-suggestsidUSFit70934820140717; Sara Hsu, China's Changing State-Owned Enterprise Landscape, DIPLOMAT (June 25, 2014),

(189) See Huang, supra note 10, at 340-41 (arguing that the privatization reform since the mid1990s was motivated by the desire to expand rather than reduce state controls of the economy).

(190) Id. at 350 (noting the ideological constraints of a full privatization reform in China).

(191) See The Decision, supra note 186.

Angela Huyue Zhang, Lecturer in law, King's College London; J.D. & J.S.D., University of Chicago. I am deeply grateful to the lawyers and government officials in China who helped me carry out the research for this article. I have promised absolute confidentiality to them and thus cannot thank them by name. An earlier version of this article was delivered at the "Chinese State Capitalism and Institutional Change: Domestic and Global Implications" conference at Columbia Law School on June 13, 2014. I'd like to thank the participants at the conference, as well as D. Daniel Sokol for helpful comments. All errors are mine. Email:
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Author:Zhang, Angela Huyue
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Date:Jun 22, 2015
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