Dairy Products China News

Two stories have dominated recent headlines in China’s dairy market: the contamination issues surrounding Fonterra and the price reductions enforced by the Chinese government on leading infant formula brands. Whilst the first of these will pass – having provided further lessons in managing such crises one imagines – the formula case marks a changing businesses environment in China.

The formula investigations (and that of GSK) followed similar crackdowns earlier this year – all mainly focused on price-fixing – on 6 foreign LCD manufacturers, 2 domestic liquor firms and 8 real estate companies. The LCD case was the first time Chinese authorities had imposed such penalties on foreign companies, after investigations in the US and Europe.

Until recently areas of competition law such as resale price maintenance, price fixing, cartels and abuse of dominance, although addressed under China’s Anti-Monopoly Law (AML), were seldom acted upon. In fact China’s only previous investigation of a multinational company related to pricing issues was the investigation into proposed price increases by Unilever in 2011, which resulted in a RMB 2 million (US$318,000) fine for the company. Yet last year, the National Development and Reform Commission (NDRC) – responsible for enforcing the price-related provisions of the AML – expanded its team focused on competition law. The State Administration for Industry and Commerce (SAIC)- responsible for the enforcement of the AML’s non-price-related provisions – did the same.

Premier Li made the reduction of bureaucratic approvals – a key NDRC role – central to his reform plan announced in March. In May, he also rejected a major NRDC urbanization plan, according to some sources. The fines for the formula brands seem part of a wider drive by the NDRC to prove its usefulness as a regulator. It’s hardly surprising that this is in question, 61 years after its creation as a setter of production targets in the wake of the revolution, and with a non-outsider as its head for the first time. Whatever the future of this body, though, the wider context of tighter government focus on regulatory and competition law will concentrate the minds of all foreign businesses operating in the market.