“Competitive Neutrality – Opportunities or Challenges for China?”

Event: Sustainable Growth Model

As China is further opening up its economy and as its foreign trade and investments are growing, the concept of competitive neutrality is currently discussed at national and international level. In order to assess the opportunities and challenges for China regarding competitive neutrality principles, FES Shanghai in cooperation with the Shanghai Institute of Administrative Law organized a two-day international workshop on June 13th-14th – Chinese and international experts met to exchange ideas and opinions on the matter.

3::The speech by Hu Gairong was about the current SOE-reforms in China and possible impacts of competitive neutrality.
Hu Gairong gave a presentation on the impact of CN on Chinese SOEs.

The emerging presence of State Owned Enterprises (SOEs) in the world economy presents particular challenges for competition, trade and investment policies. Competitive neutrality  (CN) being a relatively new concept (it was firstly developed and introduced in competition law in Australia in the 1990ies) is one way to ensure a level-playing field and improve the efficiency of the market. Generally speaking, it refers to the equal treatment of SOEs and private companies, but also domestic and foreign companies.

For China, both internal and external rationales to foster competitive neutrality principles exist: firstly, CN can be used as a leverage to further deepen the reform of the numerous SOEs to improve their efficiency. Secondly, China has to adapt to recently concluded bi- and multilateral trade agreements which increasingly contain chapters on competition law. First experiences with competitive neutrality are currently acquired within the China (Shanghai) Pilot Free Trade Zone through a “Negative-List” approach regarding foreign investment among other measures.

Against this backdrop, the workshop was intended to be a discussion board to analyse current measures of competitive neutrality and SOE reforms in China and enrich the debate with international and European examples of rules and tools for the implementation of competitive neutrality.  The meeting brought together competition experts from Mexico, Belgium and Germany with well-known research scientists on the matter from Shanghainese Universities and the Shanghai Municipal Commission of Commerce.

The workshop was structured in four sessions covering content and definitions of competitive neutrality, its impact on Chinese SOEs, its enforcement within the European Union, its increasing inclusion in Free Trade Agreements and its implementation within the Shanghai Pilot Free Trade Zone. 

During the workshop, several key issues were discussed and widely agreed upon: most centrally, not the ownership of companies is most decisive, but the government’s behaviour towards them and its policy to ensure a level-playing field. Referring to this, the importance of transparent governmental decisions concerning SOEs was underlined. During the discussion about the central government’s plans on SOE-reforms, it was stressed that a reasonable and clear classification of state-run companies into public service and business types was necessary and that key sectors for national sovereignty such as national security should be determined as clear and as narrow as possible in order to remain off-limits to foreign investment. References were made to EU competition law and its strong control of government subsidies and other forms of state aid in order to ensure the well-functioning of the European single market. Another important aspect being discussed was the widely spread feeling of threat in the European Union originating in recent Chinese oversea investments in strategic sectors, such as the planned acquisition of KUKA, a German supplier of robotics and plant and systems engineering. This debate stressed once more the necessity to promote more trust in economic relations through playing by the same rules – among them the rules of competitive neutrality.

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