Tuesday, November 4, 2014

A Quick Look at Hong Kong's Competition Ordinance

Excuse me for a moment as I move away from the fun and frivolous posts to discuss a rather legalistic topic... but this is an issue that has struck me as odd pretty much ever since I have moved to Hong Kong and I am very curious to see the aftermath of this Competition Ordinance as it is implemented here. 

Basically, Hong Kong is ruled by oligopolies.  Li Ka Shing is probably the most famous.  The man owns one of two dominant supermarket chains, one of four telecommunications carriers, one of two electricity providers, and is a real estate property developer to boot.  This is widely known, acknowledged, and permitted.  I mean, WHAT?!

So apparently the new Competition Ordinance was an attempt by Hong Kong lawmakers to address this incredibly skewed situation.

Normally I keep abreast of changes in Hong Kong law because it is good to be informed in my job, and that's about the extent of my interest.  But this law has very real and practical implications on every day life, like the price of a bag of coffee, the customer service levels (currently nil and laughable) offered by my internet network provider, my electricity bill, the price of my prescription at the local pharmacy, and, well... just about everything.

I read this article recently discussing the implications of Hong Kong's Competition Ordinance.  

The article states that: "Most lawyers agree that the law will force all players to stop price-fixing between competitors or between suppliers and distributors, both practices now considered common among Hong Kong businesses."

First of all, who else is disturbed by the fact that suppliers and distributors here are comfortable blatantly acknowledging that they fix prices?  It is one of those "well known facts" of Hong Kong that apparently no one really talks about.  Any consumer who is unaware would, upon living here long enough, likely suspect that such a thing occurs.  I for my part am skeptical that the players will stop price fixing at all.  It's been a pretty lawless process so far and I fail to see how the Competition Ordinance will effect a change.

According to the article, the mere existence of the large conglomerates that penetrate Hong Kong are "perfectly legal as long as they don't abuse their dominance."  I find this ludicrous, as any conglomerate will abuse their dominance.  How could they not?  Even with the best of intentions, by its very nature a conglomerate that has vertical supply integration will be in the position to abuse its dominance.

Did you know that this kind of price fixing and whole-supply chain control is the reason that Walmart failed to survive in Hong Kong?  They backed out of the Hong Kong market before they even opened.  That is pretty scary.  We tend to think of Walmart as the big bad corporate guys who take advantage of others.  Well, it seems like there is something much worse stewing here in Hong Kong.

According to the article, the Hong Kong government deliberately did not use to the term "dominance" and also deliberately chose not to set market shares or any threshold guidelines.  Instead, the law only refers to "substantial market power", which is a broader and more flexible assessment.  Clearly the lawmakers do not want to provide a clear definition or roadmap that the market players can easily subvert.

Despite the hullabaloo over all of this, I am very pessimistic about the effect of the Competition Ordinance. I just don't see any incentive to change the status quo. 

As the article further mentions, the lawmakers failed to implement a merger rule in the new law.  This means that there will be no breakup of the current oligopolies (which, see above, are scarily powerful).  Without a merger rule, the Hong Kong authority only has the power to go after the anticompetitive behavior when it’s already happened, but actually will not be able to prevent anticompetitive activity from happening.

I mean, seriously?  Bah.  That said, it remains to be seen if any of this law will actually trickle down and be apparent in every day life decisions.

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