China is in the middle of a major anti-trust push against foreign firms. Xi Jinping’s government is cracking down on companies like Microsoft, Daimler, Qualcomm, GlaxoSmithKline, and Starbucks, citing accusations of too-high prices, monopolistic business practices, and acting on behalf of U.S. security interests. Firms and analysts are scrambling to figure out what’s behind the trust-busting, as the New York Time reports:
“China’s not moving towards a free market, but it’s moving towards a wider palette of regulatory tools,” [director of the Research Center for Chinese Politics & Business at Indiana University Scott] Kennedy said. “These aren’t meant to create a level playing field; they obviously want the field to be slanted, but they want to use what I’d guess we call more sophisticated tools.”
Foreign companies worry that the investigations could represent the rise of a newer, subtler form of protectionism, one cloaked in regulatory impartiality but intended primarily to promote Chinese companies, especially the big, powerful state-owned companies. The government contends that it is using the antimonopoly law, first established in 2008, to protect the interests of consumers against price gouging and other abuses.
China claims that it is not using these probes in a discriminatory way against foreign firms, and it backs that up by citing actions taken against two major Chinese alcohol companies. That claim appears to be questionable; China is playing the monopoly card for strategic reasons. Foreign firms like GE or major pharmaceutical companies whose intellectual property rights China hopes to skirt are getting hit inordinately hard, as are IT companies that might threaten the internal cybersecurity more than proprietary technology would.
But the fact that China is using trust-busting as an excuse to protect its own industries should not come as too much of a surprise. Other rising countries, during their initial periods of industrial and commercial growth, have tried to protect their own firms from formidable foreign competition. The U.S., for its part, had no qualms about slapping tariffs on British products whenever they pleased during the whole period before the Civil War. U.S. industry was not exactly respectful of British intellectual property rights either—in one famous early episode, an aspiring industrialist named Samuel Slater memorized the plans for British industrial textile technology and snuck away to the New World to strike it rich.
Of course, at that time, there was no WTO to keep nations from putting up trade barriers completely at will. Now that China must work within this more restrictive framework, it has simply found a different excuse to do something that economics and history suggest it always was going to do.