Regulatory Hostage-taking and Shaming

Abstract

This chapter examines the myth behind the paucity of appeals against antitrust agencies in China. The primary reason holding businesses back from defying Chinese antitrust authorities is not necessarily the perceived low probability of success in a Chinese court but rather the high transaction costs associated with such an appeal. Chinese antitrust authorities possess wide discretion over enforcement and can proactively apply it to entire firms to settle the cases. Firms operating in China, whether foreign or domestic, are likely to continue to interact with these agencies and their host ministries in the future. Businesses therefore avoid taking an aggressive and adversarial approach for fear of future retribution. In addition, Chinese government agencies are adept at using media strategies during enforcement. In several high-profile cases, the antitrust bureau at the National Development and Reform Commission (NDRC) deftly mobilized public sentiments through the state media, strategically shaming to prevent defiance of their orders, and relentlessly suppressing experts from voicing opinions that might threaten the legitimacy of its measures. In so doing, the NDRC was able to overcome its capacity and bureaucratic constraints, thereby quickly cementing its reputation as an astute and forceful regulator.