Latest news indicates that principles of the long-deliberated program for further separation of China Telecom have been recently set. China Telecom will be divided into two parts—southern and northern businesses, and a comprehensive reorganization will be carried out in the telecom sector. After reorganization, China Telecom, China Netcom, China Unicom and China Mobile will be equally granted license for all telecom services, thus forming China’s four telecom tycoons as well as competitors.

Although specific programs have yet to be finalized and there are still uncertainties, the State’s resolve against monopoly is clear.

Irrational phenomena resulting from monopoly are common in China. For instance, telecom departments make people buy their products by taking advantage of differential treatment relating to the telephone-networking fee. Railway departments force customers to accept railway-related services provided by designated operators. Consumers must only use post packages offered by postal departments. Power departments require users to buy electric products, such as the electricity meter, electric wire and voltage transformer that they provide.

Monopoly has resulted in income gaps. According to the Guangzhou Bureau of Statistics, in the first half of this year the top three businesses in the city, in terms of the average salary of active workers in State-owned enterprises (SOEs), are monopolistic sectors. Their levels are much higher than the average 1,693 yuan (US$204.8) per-capita monthly salary in Guangzhou. Of these businesses, the average salary in the tobacco processing sector was 4,461 yuan (US$540), in postal and telecom services 3,265 yuan (US$395), and in the aviation sector 3,142 yuan (US$380).

As a contrast to monopolistic activities in Western economies, most of the practices in the Chinese economy have emerged due to administrative factors rather than market competition. Telecom, power and other sectors formed their monopoly under planned economic structure with government support. The government was the management policymaker and supervisor of the monopolistic enterprises, as well as the actual manager of specific businesses.

Experts noted such administrative monopoly is more harmful than economic monopoly arising from competition, which will make the anti-monopoly campaign more difficult.

Presently, administrative monopoly mainly involves practices such as collecting unreasonable charges on commodities from other regions through issuing government regulations and notices, and abusing quality inspection means or setting up administrative barriers such as license and sales permit to blockade local markets and obstruct free regional commodity flow. Taking advantage of the monopolistic privilege granted by the government, some sectors arbitrarily raise the threshold of entry to edge out competitors, lower service quality and launch price hikes before holding a price hearing. Also, competent departments, using administrative power, organize “associations” with leading enterprises in their respective trade.

Experts noted that administrative monopoly often results in low efficiency in business management and resources operation, causing huge waste and damage of social effective resources. It hinders market competition and expansion of new investment, thus greatly harming industrial development. While seeking interests of their own, units, departments and sectors exercising administrative monopoly have infringed upon the interests of the general public and other sectors, departments and enterprises. They have also directly harmed the overall and long-term interests of the State. Administrative monopoly hampers the expansion of new demand by minimizing the benefits of consumers, thereby becoming an obstacle for economic development.

“Administrative monopoly has become the biggest institutional bottleneck restricting the long-term, sustained and rapid development of the Chinese economy,” said Prof. Hu Angang, director of the National Condition Research Center at Tsinghua University.

He noted that administrative monopoly has evolved into huge vested interests and China’s present reform has to deal with the special interest groups.

He suggests that measures be taken to restrict the privileges of the monopolistic interest groups, downgrading them from “nobles” to “commoners,” and changing their dual economic and political status into pure economic. Commercial game rules should be reestablished to force the monopolistic sectors to maximize their profits only through technological innovation, high-quality service and fine credibility.

Wang Qishan, director of the State Council Office for Economic Restructuring, said China’s transformation from a planned to a socialist market economy is actually a process of removing government monopoly in various fields and trades. Despite remarkable achievements compared with the situation 20 years ago, monopoly is far from thoroughly eliminated, he said.

Public call for removing monopoly is on the rise. A recent survey, conducted by authoritative departments including the National Bureau of Statistics among 700 residents in Beijing, Shanghai and Guangzhou, indicates that 79.9 percent of them believe telecom is the sector with the widest monopolistic operations. Some 52.8 percent of those surveyed deem it to be the railway sector, 47.5 percent the postal sector, and 45.8 percent the power sector. Those who think it is the public transportation, aviation, banking and insurance sectors account for 37.9, 29.6, 24.1 and 14.6 percent, respectively.

This year, both central and local governments have included the anti-monopoly campaign as one of their top tasks in straightening out economic order. In the second and third quarters of this year, national industrial and commercial administrative departments launched a special law enforcement campaign focusing on monopolistic sectors, such as power, insurance, railway and postal sectors and commercial banks, which enjoy a dominant status and restrict market competition.

Wang said that, except for those involving national security, natural resources and public service, all other sectors and departments that still exercise monopoly should establish an open and competitive structure through reforms. The power, railway, civil aviation and telecom sectors will be the focus of the next stage of reform, he said.

Given this, a breakthrough of the monopolistic system and transformation of government functions will go ahead side by side, Wang said. With the administrative functions of the government precisely defined, an effective government supervisory structure will be built to provide a powerful institutional guarantee for the sustained development of infrastructure and public undertakings, and for all investors to compete on an equal footing.

Some experts predict that, with the removal of monopoly and unnecessary administrative examination procedures, China’s GDP will increase by at least an additional 30 percent in the next few years.

Legislation and Institutional Construction

Error Occurs! At present, regulations against monopolistic practices in China are contained in different laws, such as the Law on Combating Unfair Competition, the Price Law and the Law on the Protection of Rights and Interests of Consumers. But none of them use the term “monopoly,” nor capable of regulating practices involving infrastructure industries and local governments using administrative power to blockade the market. Therefore, experts urge that the Anti-Monopoly Law be formulated at an early date.

However, some people doubt the effects of the Anti-Monopoly Law on administrative monopoly. Because many administrative monopolistic practices are effectuated through government documents, they can only be solved through transformation of government functions, while the Anti-Monopoly Law can do little, they say.

Other economic law experts think differently, believing the law can surely become an effective instrument to curb administrative monopoly. Firstly, it is a law governing any monopolistic practice with anti-competition consequences. All monopolistic activities are subject to the regulation of the Anti-Monopoly Law, no matter who is the exerciser of these activities. Practices exercised by the government or its subordinate departments exclude market competition are no different from monopolistic operations by other market players, and will naturally be regulated by the law.

Secondly, the key to whether the law can play its due role in checking administrative monopoly lies in the attitude of legislators. In other words, it depends on whether or not legislators want to make the law play a substantial role.

An official from the State Development Planning Commission pointed out that if the law has limited application, or is unable to effectively solve monopoly problems, the seriousness and authority of the law would encounter tough challenges.

An official from the State Administration for Industry and Commerce said the long-deliberated Anti-Monopoly Law is unlikely to be promulgated this year, as a consensus has yet to be reached on many specific matters.

Generally speaking, most anti-monopoly laws of other countries are formulated under a market economy with a sound competition environment, while China is still in the primary development stage of a market economy. Insiders from industrial and commercial circles said this is also an element that has to be considered in formulating China’s Anti-Monopoly Law.

Some experts also pointed out that establishing a unified anti-monopoly law enforcement organ is important. According to current Chinese laws, industrial and commercial administrative departments are organs for enforcement of the Law on Combating Unfair Competition, while the State Development Planning Commission is responsible for the enforcement of the Price Law. This leads to multiple administrations of law, as well as an abnormal phenomenon where, very often, one administrative organ imposes punishment on another administrative organ. Thus, law enforcement naturally encounters many barriers.

Therefore, based on international experience and China’s reality, experts suggest that a more authoritative and highly independent anti-monopoly organ—”fair trade administration,” for example—be established. The administration can be directly under the State Council and financed by the State. It should have an independent, legal status and high administrative power, as well as quasi-judicial and quasi-legislative powers.

Introduction of Competition

When China Telecom raised local telephone rates in March, more than 1,200 families living at Yongtieyuan residential quarters in the southern part of Beijing began to enjoy cheaper prices, with the rate for local call 10 percent lower than that of China Telecom, and long-distance call 20 percent lower. The newly established Railcom offered this service.

Media comment included, “The lack of market competitors is the fundamental reason why China Telecom can raise telephone rates before clearly explaining its costs. Monopoly has resulted in its style of doing things its own way. With the establishment of other telecom businesses like Railcom, price competition, rare on the telecom market, began to emerge. As a result, telecom prices can no longer be raised at will.”

A recent report in the Yangtze Evening News stated that local railway departments in Jiangsu Province are planning to vie for a railway transportation market share. Railway sector reform is now in full swing, focusing on the separation of transportation from railway management, which has been controlled by the sector in a unified way.

For years, Jiangsu Railway has paid much attention to passenger transportation—a real bonus in the railway transportation network. The Beijing-Shanghai Railway, especially its Nanjing-Shanghai section, is a prime passenger transportation line in China, and traverses Jiangsu. During the holidays, in particular, every train on this line is packed. After inspection and preparation, Jiangsu Railway is ready to enter the passenger transportation market.

Reform in the power sector, which is more difficult, has also begun. The former Guangdong Power Group Corp. was divided into the Guangdong Power Group Co. Ltd. (a power grid business) and Guangdong Power Assets Management Co. Ltd. (a power production company). The two businesses began formal operation on August 8, and will exercise functions as investors of State-owned assets. Thus, Guangdong Power has taken a national lead in accomplishing separation of power plant from power grid.

Pan Li, chairman of the Guangdong Power Assets Management Co., said his company would engage in capital management and reduce the proportion of State assets in power enterprises through assets reorganization and equity transfer. It will also participate in the competition of the electricity generation market. Wang Yeping, chairman of Guangdong Power Group, said his company would soon form integrated marketing and customer service systems.

Competition has brought more choices and benefits to consumers, and opportunities to market participants. It has also brought vitality to those monopolistic enterprises that suffered low efficiency under the former system.

The water supply sector in Shanghai used to incur 800 million yuan (US96.8 millon) of losses annually. It planned to make up the deficit by the end of this year. However, it met its goal ahead of time due to the introduction of a competitive mechanism in reform. From January to April, the sector earned more than 10 million yuan (US$1.2 million) in profits.

Shanghai’s gas sector relied on government subsidies for a long time. It has made up its 400 million yuan (US$48.4 million) deficits just one year after reorganization.

Relevant departments of the State Council are planning to accelerate reforms in the monopolistic telecom, aviation, banking and transportation sectors. The standard for market entry will be lowered, and private businesses will be permitted to enter these sectors in an all-round way.

(Beijing Review November 8, 2001)