Hong Kong in need of law for fair competition

The Hong Kong government has produced a paper on the proposed fair
competition law for a three-month public consultation. Stephen Ip,
secretary for economic development and labour, said that the government
is "open-minded" on the "need" of the law.

While the government's seemingly flexible stance on the proposed law is
understandable, it is important for the public to realize that such
legislation addresses one of the most pressing issues in the development
of Hong Kong as a world-class service centre capable of meeting the needs
of the rapidly growing mainland economy.

To achieve that goal, Hong Kong must maintain a transparent and fair
business environment to attract the best companies in their respective
fields from around the world. Steeped in the tradition set by a
comprehensive and all-encompassing anti-trust law, US companies are
particularly concerned about unfair practices that can upset the level
playing field to learn chinese.

More importantly, a fair competition law is seen by some economists and
business professionals as essential to maintaining the competitiveness of
Hong Kong in relation to other mainland cities, including Shenzhen,
Guangzhou and Shanghai. Monopolies, they say, are inefficient and will
inevitably drive up prices of products and services to recoup the money
they spent on cornering the marketplace.

The container port in Hong Kong is a case in point. In the early 1990s,
the then Hong Kong government invited tenders for the construction of a
new container port. At that time, a large US shipping company mounted a
campaign calling for a modification of the tendering conditions to break
the stranglehold of the existing two operators.

It argued that the oligarchy could afford to block any competition by
outbidding them. They could then raise the rates to recover the cost. The
shippers would have no other choice but to pay the high charges.

The high charges of the container port in Hong Kong have often been
attributed to the cost of land. But, as is now obvious, the root problem
stemmed from the failure to ensure fair competition by allowing new
entrants into the industry. Having vanquished all competition in Hong
Kong, the oligarchy was lulled into thinking that it was entitled to high
profit margins and absolute control of the industry.

As such, the Hong Kong container port was ill prepared for competition
from the new ports in Shenzhen and some other cities in the Pearl River
Delta region. The cost structure has become so rigid that changing it
would require a total corporate re-engineering.

Many studies have shown that an increasing portion of the re-export trade
with the mainland has been shifted to the Shenzhen port. The loss of
re-exports has a much wider implication on the overall economy than just
trade. It also means the loss of business in the back end of the
manufacturing process, such as quality control, packaging and logistics.

The government-appointed review committee recommended in June that Hong
Kong needed legislation covering all business sectors, to be enforced by
a high-level competition commission. At present, the specific fair
competition laws apply only to broadcasting and telecommunications. A
government advisory group has been established to process complaints of
unfair competition in other economic sectors. But the group has no legal
power to conduct investigations or to punish the offenders.

A new law of this magnitude has understandably raised concerns about
frivolous or malicious complaints that could lead to expensive and
time-consuming lawsuits. Some major business organizations have suggested
a compromise targeting selected sectors where unfair trade practices are
seen to be most obvious and rampant.

But the fundamental question to ask now is not the scale or scope of the
proposed laws. The question is whether Hong Kong needs such a law. The
answer has to be yes if Hong Kong is serious about maintaining its
relevance to the mainland's economic development.

As Ip of the Hong Kong government said: "If the feedback we receive
confirms our belief that now is the time to have a competition law, then,
of course, we would be happy to press ahead."