Raising Awareness

      of Anticompetitive

      Behavior in the

      Financial Sector of the

      People’s Republic of China

      By Hiroko Uchimura-Shiroishi and Hanhong Wu

       Asian Development Bank

      © 2013 Asian Development Bank

      All rights reserved. Published 2013.

      Printed in the Philippines.

      ISBN 978-92-9254-063-0 (Print), 978-92-9254-064-7 (PDF)

      Publication Stock No. RPT135443-2

      Cataloging-in-Publication Data

      Uchimura-Shiroishi, Hiroko and Hanhong Wu.

       Raising awareness of anticompetitive behavior in the financial sector of the People’s Republic

      of China.

      Mandaluyong City, Philippines: Asian Development Bank, 2013.

      1. Economic behavior. 2. Financial sector. 3. People’s Republic of China.

      I. Asian Development Bank.

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       Foreword

      Monopolistic behaviors adversely affect industries and consumer welfare. They discourage competition in an economy, holding back development and slowing down progress. They cause the inefficient allocation of resources, distort the dynamics of market forces, and reduce incentives for industries to innovate. As a corrective measure, governments adopt laws and regulations that would lessen, if not totally eliminate, monopolistic behaviors. Such was the case of the passage of the competition law in the People’s Republic of China (PRC) in 2008.

      Serving as the backbone of any modern economy, the financial sector is a key area covered by the competition law of the PRC. This paper examines the application of the law in the PRC’s banking, insurance, and securities markets. It evaluates the prevailing enforcement and regulatory practices relative to the competition law, and reviews issues that cause conflicts between the antimonopoly enforcement authorities and the financial regulators. These issues include scope of enforcement, policy targets, work methods, and work emphasis. While no antimonopoly case has been officially reported since the law was passed, the study points out monopolistic behaviors in the PRC’s financial industry that warrant the attention of the enforcement authorities.

      Enforcing the competition law in the PRC’s financial sector is difficult primarily because of a lack of detailed implementation regulations, lack of coordination between the antimonopoly agencies and the financial regulators, and conflict of interest between state ownership of large financial institutions and the need for increased competition in the financial sector. Consequently, the PRC’s antimonopoly enforcement authorities have been asking for the implementing regulations to strengthen the implementation of the law. ADB will continue to support this initiative because it believes that the adoption of a concrete and specific competition policy will ensure the effective implementation of the competition law.

      The cooperation between ADB and the PRC on antimonopoly issues has come a long way since 2003. ADB is pleased to have contributed to the PRC’s efforts in adopting the competition law and in developing a comprehensive competition policy. By providing technical assistance to the PRC government, ADB helped revitalize the legislative process for the competition law and supported the development of the legal framework for the law. With the adoption of the competition law, ADB’s assistance then focused on strengthening the capacity of relevant government agencies to implement it effectively. Through this publication, ADB hopes to contribute further to the understanding of antimonopoly practices in the financial sector of the PRC and their implications for the economy.

       Acknowledgments

      Hiroko Uchimura-Shiroishi (task leader) developed this knowledge work with input from Professor Hanhong Wu (consultant) of Renmin University. Professor Wu’s extensive research experience in the financial sector of the People’s Republic of China, as well as his recent research into the regulatory framework of the financial market, provided a solid knowledge base for this publication.

      Special thanks go to Fiona Connell and Peter Marro, peer reviewers, for their valuable comments. This publication also benefited from the overall guidance of Betty Wilkinson, Director, Public Management, Financial Sector, and Trade Division, Central and West Asia Department; and Ying Qian, Director, Public Management, Financial Sector and Regional Cooperation Division, East Asia Department.

      Pilar Sahilan, Arvin Diaz, Mary Ann Asico, Edith Joan Nacpil, and Carlos Llorin Jr. provided editorial and design services for this publication.

       Introduction

      The Anti-Monopoly Law (competition law), which has been in effect since 1 August 2008, seeks to encourage competition, maintain orderly markets, and facilitate the allocation of resources through open markets in the People’s Republic of China (PRC). As provided in Article 2 of the law, the competition law oversees and regulates monopolistic conduct in all economic activities within the PRC. Under Article 12, all forms of monopolistic conduct of natural persons, legal persons, and organizations in the manufacture, sale, or delivery of goods and services within the PRC are subject to the competition law.

      State agencies have a dominant role in the PRC’s financial industry, which covers the banking, insurance, trust, and securities sectors. As prescribed by law, the banking and trust industry in the PRC is supervised and regulated by the China Banking Regulatory Commission (CBRC); the insurance industry, by the China Insurance Regulatory Commission (CIRC); and the securities industry, by the China Securities Regulatory Commission (CSRC). Since the competition law took effect, however, there have been various challenges to its proper functioning. This study was done to address these challenges. In particular, it was aimed at (i) investigating impediments to the implementation of the competition law in the financial sector, (ii)