International automakers are under close scrutiny as the Chinese government-led investigations begin to deal out penalties and verdicts.
IHS Automotive perspective | |
Significance | Automakers Audi, BMW, Mercedes, Chrysler, Jaguar Land Rover, Toyota, Honda, and General Motors indicate they have been probed as the NDRC and divisions claim 1,000 auto-related companies are under investigation. |
Implications | The 2008 Anti-Monopoly Law is now being stringently used to enforce order across industry in China, as the auto industry bears the brunt of being made an example of. |
Outlook | State-led investigations into alleged monopolistic practices are understood to be cross-industry and involving both domestic and foreign auto companies, although recent statements from state media and officials regarding the anti-monopoly probes have only highlighted cases against foreign companies. |
The Chinese government-backed investigations into alleged malpractices in the automotive industry are led by the powerful National Development and Reform Commission (NDRC) and its subsidiaries at provincial and city levels, with more than 1,000 auto-related companies under investigation (see China: 13 August 2014: NDRC probes 1,000 auto companies, GM confirms investigation) . The main investigations centre on alleged violations of the 2008 Anti-Monopoly Law, which has until now rarely been enforced prompting many to overlook its significance. The state-led investigations have claimed that they aim to build a fair market, and clean up the auto industry. However, initial investigations leaked by officials and statements to the state media have highlighted allegations against premium international brands in China. The probes are expected to become regular as the government says it aims to clean up corrupt practices across industries in the country (see China: 11 August 2014: Chinese authorities announce probes to be regular to "clean up auto market").
BMW dealers fined following NDRC probe
The Chinese authorities have fined BMW dealers in China’s central Hubei province for practices in violation of the 2008 Anti-Monopoly Law. The state media Xinhua has released the official government verdict against four BMW dealers in Hubei which were found, by the Hubei price regulator, to have manipulated market prices and had formed a “pricing alliance,” it said. The Chinese authorities have issued a penalty fine against the four dealers, amounting to USD260,000 or CNY1.6 million.
The local government in Hubei province issued the verdict to the Chinese state media, Xinhua, today (14 August).
Audi to be fined imminently
The report from Xinhua also highlights that Audi is expected to be given a fine "imminently", stating that the NDRC had on 6 August stated that it will punish Chrysler and Audi for "monopolistic practices".
Local Chinese media source the 21st Century Business Herald has stated that the government is looking at fining Audi around CNY250 million (USD40.63 million) for violating the Anti-Monopoly Law. Under the 2008 law, violators may be fined 1-10% of their annual revenues for the previous year.
Audi sent a statement directly to IHS Automotive on Tuesday this week where the German premium brand of Volkswagen stated that it was willing to accept the findings (see China: 12 August 2014: Audi ready to accept penalty charges from Chinese investigation). "According to investigations of the Hubei Provincial Price Bureau, partial practices in the dealership network of the FAW-Volkswagen Sales Co., Audi Sales Division in Hubei province have violated national anti-monopoly laws. The Audi joint-venture (JV) FAW-Volkswagen has closely co-operated with the investigation and will accept a penalty." The automaker added that the final conclusion to the probes by the relevant authorities has not yet been announced, and that the company attaches "great importance" to adhering to local laws.
The government has not yet released its official report and penalties that it intends to impose. “ Please understand that we will not further comment until the final conclusion of the investigation is announced by relevant government authorities,” the statement from Audi said.
Japanese companies also to be fined
Meanwhile, state media has insinuated that a number of Japanese auto related companies are to be fined penalties for breaking the 2008 Anti-Monopoly Law. The reports in Xinhua and other media have not stated the names of the companies under investigation.
“An NDRC spokesperson said probes into 12 Japanese companies have also found monopolistic behaviour on prices of auto parts, and they will be punished in accordance with the law,” Xinhua states, without giving details.
Previously executives at Lexus, the premium brand from Toyota, stated that they were aware of the probe and were working with authorities (see China: 8 August 2014: BMW cuts spare-part prices, Lexus also faces Chinese anti-trust investigation).
Following this, Honda and Toyota began slashing prices of their spare parts in China, with financial daily the Nikkei stating that Toyota and Honda have been advised by their Chinese lawyers to cut prices in order to avoid being seen as "unco-operative" (see China: 11 August 2014: Toyota and Honda cut parts prices as Chinese probe widens).
Outlook and implications
The worry is that a number of automakers in China have begun to cut prices of vehicles and parts prior to the official results of the current NDRC led probes into violations of the 2008 Anti-Monopoly Law have been officially completed. Leaks and statements from government affiliated bodies have highlighted international automakers currently under investigation. And advice from Chinese lawyers and others, also used to the absolute power that the authorities have, have led international auto related companies to pre-empt findings by releasing statements showing they agree with prospective findings.
The European Chamber of Commerce has therefore begun to voice concern over the procedures used by the authorities conducting the investigations into its clients’ activities in China. "The European Chamber has received numerous alarming anecdotal accounts from a number of sectors that administrative intimidation tactics are being used to impel companies to accept punishments and remedies without full hearings," the statement from the EU Chamber of Commerce said as quoted by Reuters, adding: "Practices such as informing companies not to challenge the investigations, bring lawyers to hearings or involve their respective governments or chambers of commerce are contrary to best practices," it said.
The authorities in China have begun, via state media, to issue statements that the probes are not solely into foreign automakers and parts companies operating in China.
The Chinese state Ministry of Commerce of the People’s Republic of China (MOFCOM) has issued a statement on its website related to the current ongoing anti-monopoly probes. The statement says: “”Chinese and foreign companies are equal in front of China's anti-monopoly law, a Ministry of Commerce spokesman said on Saturday in response to recent probes into a number of foreign firms. These investigations target monopolistic practices in general and aim to promote fair competition and protect consumer interests, said Shen Danyang.” The statement continues to say that: “Both domestic and foreign firms must bear the due liabilities if they break the law, Shen said.”
It is therefore likely that in coming days there will be revelations from the authorities of other, domestic auto related companies, under investigation in order to balance the situation. However international car makers operating in China and found to be violating the law will definitely be made an example of. The state owned FAW Group is under investigation already for alleged corruption, but this is understood to be a different government division.