The Supermarket Sector in China and Hong Kong: A Tale of Two Systems

Dr. Mark Williams, Associate Professor of Law, Hong Kong Polytechnic University

Paper presented at The 8th Competition Law Scholars Forum, City University, London, 7 September 2006

Abstract

The supermarket sectors in China and Hong Kong have different histories, structures and competition-related problems. In China, after 1949, all large-scale retail operations were nationalised as part of the socialist transformation of the economy. Local government control of supply chains and retailing meant there were no  nationally organised chain stores. The retail sector was highly fragmented and faced little, if any, competitive pressure.  Only in the 1980's did the system change with an abandonment of the formal state plan, the liberalisation of agriculture and acceptance of small private retailers. By the mid 1990s, various local governments across China flouted national foreign investment regulations and encouraged international grocery firms to establish retail chains and grocery hypermarkets. The massive investment by foreign retailers has had a dramatic effect on the sector in major cities and has caused alarm and despondency amongst local retailers who have agitated for protection against the alleged ‘monopolistic' practices of the foreign giants. The national government has commissioned reports that have cited abusive conduct by the foreign chains and fretted about the strategic implications of wide-scale foreign ownership in the sector.  New regulations are slated to address these issues.

In Hong Kong, the traditional laissez faire economic policy of the former colonial government has been continued by the post-1997 administration. This do-nothing policy has allowed the creation, by market forces, of a supermarket duopoly that has in excess of 80 per cent of the local supermarket trade. The incumbents are both subsidiaries of local property conglomerates and given local conditions the ability of newcomers to enter the market is restricted by high barriers to entry. Allegations of abuse by the duopolists of their dominant positions have surfaced over the years, as have complaints of harsh buying conditions, exclusionary tactics and abnormally high retail margins and profits. But as Hong Kong has no general competition law, these complaints have not resulted in any government intervention in the sector.  This complacent attitude is likely to change given the recent publication of a government-sponsored Competition Policy Review Committee report that recommended the enactment of a general competition statute which would include powers to investigate and sanction abuses of dominance.

Available at http://www.clasf.org/CompLRev/Issues/Vol3Issue2Art4Williams.pdf