“Chris Devonshire-Ellis of China Briefing suggests that China’s new Anti-Monopoly Law could be used to encourage investment in China’s interior, specifically in the realm of inefficient state-owned enterprises like the national rail transportation network. Though unclear from his article, legally his proposal hinges upon the second paragraph of article 7 of the Anti-Monopoly Law, which requires that state-owned enterprises “shall not impair consumer interests by taking advantage of their dominant positions or exclusivity and monopoly positions.” (See Peter Wang’s article on the subject here for more discussion) It also relies upon article 51, which reads as follows:

Where administrative agencies and organizations that have authority for public affairs management as conferred by laws and regulations abuse administrative powers and performing acts which eliminate and restrict competition, their immediate higher-level authority shall order them to make corrections; and impose administrative sanctions on persons in charge that are directly responsible and other directly responsible persons in accordance with the laws. The Anti-Monopoly Law Enforcement Authority may put forward a proposal for handling the matter in accordance with laws to the higher-level authority.
Though his argument is an interesting one, there are several reasons why I think it will not come to pass, at least with respect to the transportation system.

First, Devonshire-Ellis does not identify a specific mechanism in the AML that would encourage FDI in China’s state-owned enterprises. More to the point, despite AML article 51, there is no procedure with teeth that would subject state-owned enterprises to the ambit of the AML and remedies like divestiture, if that’s indeed what he’s getting at. (And what are substantive laws without procedures with which to enforce them?) Second, the Ministry of Railways has significant political capital, as evidenced by the fact that when China recently moved to consolidate the Ministry of Communications, the Civil Aviation Administration and the State Postal Bureau into a “super Transport Ministry,” the Ministry of Railways was left alone. Third, the Ministry of Railways is somewhat special in that it boasts its own court system, and therefore is more closely tied to political issues and encumbered by issues of local protectionism. Fourth, while the all-important NDRC/MOFCOM Catalogue of Industries for Guiding Foreign Investment technically encourages foreign investment in railway transport, the catalogue specifically encourages investments in railway equipment and infrastructure, not ownership and operation of the railways themselves. (Scroll down here for more information) Finally, one cannot forget the importance of railways to national security, so I would not be surprised to see a foreign investor seeking to invest in China’s railways forced through the national security review required by article 31 of the Anti-Monopoly Law. (English language PDF version available here)

Absent more specifics, I can only envision Devonshire-Ellis’ theory working if a state-owned monopoly gets caught red-handed fixing prices. Would a foreign investor be willing to jump through the hoops required for a national security review that is, as of yet, not entirely defined under the new AML? Particularly given the risk of being on the receiving end of a PRC reprisal for the failed 3Com-Huawei deal? Probably not. But perhaps my thoughts are, as Devonshire-Ellis puts it, simply “groans of the foreign lawyers.”