New Regulation Will Reduce Potential Dominance

China is growing exponentially. Companies from around the world are jostling to set up shop in the country where the middle class has grown to about 300 million strong. That is a lot of yuan to spend. But, while China is fertile ground for many businesses, there is the risk that as the complexities of businesses grow, there will also be the added risk of government interference.

 China wants to make sure that it has tight reins on the growth of the economy and its participants, the majority of which still have some sort of state ownership. Why this is happening is clearly related to what had happened in Russia during its capitalistic charge when state-owned companies were literally given away to savvy business people. The government say idly by and did very little to manage the transformation of the economic system. China saw this unfold and clearly does not want to make the same mistake as its communist counterpart in Moscow.

 Just this week, China took another step in trying to regulate the business sector. China’s Cabinet supported a draft anti-monopoly law that aims to ban monopolistic agreements including price- fixing, collusion, along with the investigation and prosecution of monopolistic practices.

 Global businesses need not worry as China’s Cabinet said the law would not be used to target foreign businesses. While the proposed law will not focus on targeting foreign businesses, I get a sense that foreign businesses will clearly not be shelter from the new regulation.

 In my view, having an oligopoly or perfect competition system makes sense. My view is consumers are treated better when there are choices available. The proposed Chinese law seeks to protect fair competition. But it is clear that the new regulation will reduce the potential dominance of any foreign firm operating in or wanting to operate in China.

 That is the risk of setting up shop in China.