Antitrust Crackdown in China May Erode Companies' Profits

By Liza Lin , Kevin Hamlin and Ma Jie

Aug. 11 — China's antitrust crackdown signals a new era of regulatory scrutiny in the country and threatens to end the days when products from Audi sedans to Starbucks lattes generated fatter profits in Beijing than in London or New York.

In the past month, Chinese antitrust authorities have pressured at least seven carmakers to cut prices and raided the offices of software maker Microsoft Corp. These companies join Qualcomm Inc., Caterpillar Inc., Mead Johnson Nutrition Co. and Danone among foreign businesses that have fallen under anti-monopoly scrutiny in China since last year.

The probes, combined with signs the government is shunning some U.S. technology companies for security reasons, have left foreign businesses struggling to figure out the evolving laws and regulations in the world's most populous country. Those seeking to adapt face the challenge of interpreting vague rules in an economy that's no longer as reliant on foreign investment as in past decades.

“We may be seeing a paradigm shift where the rules of the game are changing,” according to David Loevinger, former U.S. Treasury Department senior coordinator for China affairs and now an analyst at TCW Group Inc. in Los Angeles. “Until people figure out the new rules, it will create a much more uncertain business climate.”

“There's a concerted effort on the part of multiple regulators in China to aggressively enforce the regulations,” said Kent Kedl, managing director for Greater China and North Asia at Control Risks Group Holdings Ltd. “They are being much more aggressive now than we have ever seen.”

For Volkswagen, China is so profitable that its earnings there, along with those of Audi, generate all of its cash flow, according to estimates by Max Warburton, an analyst at Sanford C. Bernstein, in November.

Oversight Triumvirate

Antitrust jurisdiction in China has been split into three since its anti-monopoly law went into effect in 2008. Cases fall under National Development and Reform Commission jurisdiction when involving prices, the Ministry of Commerce assesses the legality of mergers and acquisitions, and other anticompetitive cases fall under the State Administration for Industry and Commerce.

That said, having a triumvirate can be confusing as the boundaries between each agency can be obscure, said Akira Moriwaki, the chief representative in the Shanghai office of Anderson Mori & Tomotsune.

“There's a lack of transparency in law enforcement,” said Moriwaki. Whistle-blowers “won't even know where to go to,” he said.

No Xenophobia

While the U.S. Chamber of Commerce warns that China is losing its appeal as the top investment destination for American companies, China says concerns of a coordinated attack are unfounded.

Foreign companies will continue to be treated the same as local companies and welcomed by China to develop various forms of cooperation, Ministry of Commerce spokesman Shen Danyang said in a statement this month.

Some global companies are retreating. Revlon Inc., the cosmetics maker, said in late December that it will cease operations and eliminate about 1,100 positions in China. Japanese dairy company Meiji Holdings Inc. in October announced that it would pull out of China after 20 years in the country.

With assistance from Steven Yang and Tian Ying in Beijing, Lulu Yilun Chen and Natasha Khan in Hong Kong, Tim Culpan in Taipei, Alexandra Ho in Shanghai and Cheng Leng and Rin Ichino in Tokyo

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at; Kevin Hamlin in Beijing at; Ma Jie in Tokyo at

To contact the editors responsible for this story: Young-Sam Cho at; Michael Tighe at; Stephanie Wong at

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