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New Anti-monopoly Law is Changing the China Auto Market

2008-08-27    Source:english.chinabuses.com

Auto market activities in China may undergo fundamental changes following the enactment of the new Anti-Monopoly Law, which took effect on August 1.


The law bans monopoly agreements, abuse of dominant market position as well as concentration of business operators among market players.


It is a law roughly in line with the international competition law standards, and is analogous to the EU model in many respects, even though it is not solely against monopoly in the auto industry.


Dramatic changes in the Chinese auto market are expected in the new era, commented some market players. The law would firstly affect auto sales activities, meaning that such existing practices as the "resale price maintenance", "territorial restraints" and "spare parts management" may come to an end.


Changing market activities


1. Resale price maintenance


Existing practice: To prevent a big drop in car prices, some automobile manufacturers associations have fixed the lowest price for dealers for selling their new products. The prices vary among different regions. Penalties would be imposed on dealers who sell the cars at prices lower than the floor prices.


Under the new law: Car manufacturers are no longer allowed to set minimum prices for any third party. The dealers can set the prices as they so wish, and any "resale price maintenance" would be considered as monopoly.


2. Territorial restraints


Existing practice: Car dealers are not allowed to sell cars to consumers outside their regions, or suffer from high penalties. Some promotional activities can only be carried out within the dealers' own designated areas. This has been a method carmakers used to ensure the pre-set floor prices.

Under the new law: Dividing the market into different zones is not allowed.


3. Restriction on agents


Existing practice: Currently, high-end automobiles, spare parts and prices are the three monopolized segments in the auto market and most high-end carmakers only supply to 4S stores. The term of "4S" represents "sales", "spare parts", "services" and "surveys", and a 4S store specializes in sales of cars and spare parts made by one manufacturer exclusively as well as providing after-sales services and collecting market information for the manufacturer. With this practice, consumers can only get after-sales services at these designated stores.


Under the new law: No provisions that eliminate or restrict market competition will be allowed. This implies that consumers will be able to choose from a wider range of after-sales services providers.


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