Hong Kong Competition Law

A great editorial by Next Magazine's Yueng Wai-Hong appears on the Wall Street Journal opinion page. It starts:

Hong Kong is at the threshold of enacting a competition law. This is ironic, given that Hong Kong probably has won more accolades as either the freest or the most dynamic economy in the world than any place else. A free and dynamic economy presumes fierce competition, doesn't it? So why the need for government prodding to compete?

This drive for a new law certainly isn't prompted by a sudden slackening in competitive vibrancy. Just last year, Hong Kong gave birth to more companies than babies: 100,761 vs. 70,394. This bent on commercial rather than familial pursuit has been in keeping with a long-established trend. You can therefore be excused for thinking that Hong Kong can do without a competition law.

These laws are important for Taiwanese companies. Many Taiwanese companies are listed on the HK exchange and will be subject to these laws. As Mr. Yeung rightly notes, these laws will also increase the cost of doing business in HK.

However, Mr. Yeung does seem opposed to their implementation. Last semester in an economics class we did a case study on anti-competitive practices in the Hong Kong supermarket industry. New players were apparently driven out by hostile pricing strategies from Wellcome and Park n Shop. Once the new entrants were pushed out the prices were elevated to normal levels ensuring there were no long term consumer benefits. I assume the law hopes to discourage this type of behaviour from firms.

When I first read the article I also thought perhaps this type of legislation would not be beneficial to Mr. Yeung. Mr. Yeung is the publisher of Next Magazine which according to a Nielson report quoted on Wikipedia is the second most widely distributed weekly magazine in Hong Kong. Wikipedia says:

According to the March 2003 ACNielsen RARD Report, Next Magazine had the second highest readership among weekly magazines in Hong Kong after Sudden Weekly, its sister entertainment news magazine under the same company.

I am not an economics expert but it seems Next magazine would benefit greatly from NOT having a competition law. After all, any moves by them to prevent new entrants into the (already very crowded) media market in Hong Kong may be scrutinized by the government and may cause litigation against the company.

I personally do not think this law will disourage businesses from opening in Hong Kong and it may even give these businesses a better chance of survival. It is OK to say that over 100,000 companies are opened in Hong Kong every year, but how many of those companies survive and how many of those new companies die as a direct result of anti-competitive behaviour? Also, how many of those companies actually do business in Hong Kong? In the past many foreigners were forced to open companies in Hong Kong and then open branch offices in China. The law in China prevented them from opening their own, fully owned foreign companies. Now these would be interesting stats. Only then can one decide whether or not a competition law is neccessary in Hong Kong.

Article: Hong Kong's Noncompete Clause
Wikipedia: Next Magazine