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The State Council, China's central government, yesterday gave in principle approval to a draft anti-monopoly law which would provide a free and fair competitive environment to all enterprises.

A statement from an executive meeting of the State Council presided over by Premier Wen Jiabao said the draft law, after revision, will be submitted to the Standing Committee of the National People's Congress, the top legislature, for deliberation.

"Monopoly is not an offence in itself. The trouble arises when monopolies wield their dominant status to curb competition," said Huang Yong, an anti-monopoly consultant at the Ministry of Commerce, adding that the law does not specifically target multinationals.

The draft law contains articles regulating monopoly agreements, abuse of dominant market status and large-scale consolidation.

It defines "monopoly" as a single operator controlling half or more of an industry's overall market share, or two operators colluding to hold two-thirds, or three holding three-quarters.

While multinationals are reluctant to publicly discuss the proposed anti-monopoly law, in private, many executives are extremely attentive to every detail in the draft, said Lester Brown, a Beijing-based lawyer at law firm Allen & Blake LLP.

"Some foreign-invested businesses have become a little uneasy about the law in the wake of a State Administration for Industry and Commerce report in 2004, which warned that foreign business giants were building monopolies in China," said Wang Xiaoye, a law professor at the Chinese Academy of Social Sciences who participated in the drafting of the law.

According to the report, some transnational companies have been using their dominant positions in technology, brand recognition and capital and management to suppress competitors and maximize profits on the Chinese mainland. For instance, Kodak and Fuji account for about 75 percent of China's film and bromide-paper segments.

The report lists a number of industries where free competition may be threatened by multinationals, including software, photosensitive material, mobile phones, cameras, tyres and soft packaging.

"Though the law may not be to the advantage of multinational companies, China needs a comprehensive and enforced set of competition laws to become a fully developed economy," said Wang, adding that China is still very supportive of overseas investment.

Chinese enterprises, too, face problems.

"To some extent, Chinese enterprises are more vulnerable to the anti-monopoly law, given their relative lack of experience in this aspect," Wu Xiaochen, a lawyer with Seafront Law Office, told China Daily.

For instance, it is common practice for some leading enterprises or industry associations to agree on pricing, which is typical monopoly behavior, Wu explains.

"And they will have to think twice when taking over other companies after the law is enforced," Wu added.

According to the draft, companies seeking mergers or acquisitions will have to notify the authorities if one or more of the parties involved has a turnover of 1.5 billion yuan (US$185 million) or more.

Anti-trust legislation is regarded as a basic requirement of the market economy in developed economies.

China started work on the law in 1994; and the first draft was completed in 2003.

(China Daily June 8, 2006)