In May, China approved the $18 billion acquisition of Toshiba's memory chip business by a group led by U.S.-based Bain Capital and South Korean chipmaker SK Hynix, ruling that the purchase did not violate local antitrust rules.
By the end of July, the mood in Beijing had changed. Chinese antitrust regulators failed to rule on U.S.-based chipmaker Qualcomm's $44 billion bid to buy NXP Semiconductors, a Dutch rival, which had been two years in the making, before the deadline for a deal expired.
In public, no Chinese official has blamed the current bout of trade frictions with the U.S. for the failure to come to a decision, which forced Qualcomm to abandon its bid. But it was hard not to attribute the inaction to anything else.
August marks the 10th anniversary of the introduction of what was supposed to be a technocratic and professional antitrust regime in China, replacing a more murky, unpredictable and politically-driven decision-making framework. The regime gives Beijing the right to determine whether any merger or acquisition anywhere in the world could lead to arbitrary or discriminatory behavior in its market, as long as the companies concerned do business in China.
That can involve unpredictable judgments about product pricing and royalties, or lead to the withdrawal of crucial licenses and patents. Nevertheless, the new system was accompanied by hopes that it would be apolitical, and that it would mark a shift to a more level playing field in which rules would apply equally to local and foreign companies.
Instead, antitrust judgments quickly indicated that the new system was largely intended to benefit local companies by using China's huge market as leverage for conditions on foreign companies seeking access. In the face of growing protectionism in the U.S., that practice has become far more blatant. "They have used antitrust as a tool to impose market conditions or to say that prices are too high, for example -- whether for technology or for drugs," said a lawyer working for a U.K. law firm in Hong Kong.
Even in times of more stable international relations China's antitrust regime was always likely to err on the side of self-interest. Now, the three agencies involved -- the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce -- are likely to feel obliged to do so. "Sometimes, Beijing has its hands tied," said a Beijing-based local lawyer involved in handling antitrust cases. "The government needs to be sensitive to the hot-headed rhetoric of social media and public opinion."
The contrasting fates of the SK Hynix and Qualcomm transactions provide strong evidence that the growing tensions between China and the U.S. are flowing through into the antitrust regime. Originally, Beijing was expected to rule on the Toshiba sale on March 23, local time. But that was March 22 in Washington, the day that U.S. President Donald Trump signaled his willingness to fight a trade war with China. The decision was postponed.
By May, China was hopeful that cross-Pacific relations would not deteriorate further, and decided to approve the deal. Its assent followed assurances that Chinese companies such as Huawei and Lenovo -- big buyers of Toshiba's memory chips -- would continue to be able to purchase them, said the Beijing lawyer, who has direct knowledge of the matter. It is a measure of how wrong Beijing's initial optimism was that it then allowed the Qualcomm deal to die.
Qualcomm has been particularly unfortunate when it comes to China, precisely because it is so important to mainland firms. Indeed, it has relied on the Chinese market for about half its revenues. Three years ago, China's NDRC levied a fine of almost $1 billion on Qualcomm after accusing it of abusing its dominant position by combining more and less essential patents in a single package that clients were forced to purchase in its entirety. The case was brought by Mobile China Alliance, representing the cell phone industry and the Internet Society of China, Hong Kong lawyers believe.
Despite the fine, Qualcomm's dominance in parts of the Chinese market remains so great that when Chinese smartphone maker Xiaomi launched an initial public offering earlier this year, one of the risk factors it declared was its dependence on Qualcomm chips. Indeed, Xiaomi's offer memorandum warned investors that the company could not be sure that it would never be denied access to Qualcomm chips by the U.S. government. ZTE, a rival Chinese smartphone maker, was briefly prevented from accessing U.S. chips in April, before being reprieved in June by Trump.
But Qualcomm is not alone in being a target for Chinese regulators whose principal concern is the health of local competitors. Microsoft has also been the object of repeated regulatory queries about its Windows operating system. Volkswagen and Chrysler have been fined for antitrust violations. And in 2012 China approved Google's acquisition of Motorola Mobility only after securing a commitment that Google would give Chinese smartphone makers access to its Android operating system.
Both the Microsoft and Google cases "underscore a broader regulatory policy in China focused on ensuring that domestic technology companies have access to [intellectual property] which is vital to their operations. In both cases, [the commerce ministry] highlighted the particular importance of the smartphone industry in China," noted one law firm in its review of the matter.
It is true that Chinese companies have not always escaped the wrath of the country's regulators. For example, the NDRC fined three local drug makers in 2016 for anti-competitive conduct, using a formula for the fines based on a percentage of their sales of the drug in question, which was used to treat insomnia.
But monopolies built by Chinese companies have received much less attention from China's antitrust regulators. Ride-sharing app Didi Chuxing, for example, has merged with or acquired virtually all its competitors. For now, the company continues to subsidize its clients, rather than gouge them. But complaints are slowly beginning to surface about higher charges and poorer service.
Does that mean Didi should be broken up? And what would the appropriate time be for such intervention? Should regulators act pre-emptively or wait until it raises prices to take advantage of its market power? The same question could be asked about Alibaba's overwhelming market share in e-commerce, or Baidu's in the internet search sector. The provision of cloud services raises similarly troubling questions.
Going forward, these issues will become even more fraught. Chinese new economy and technology companies are becoming far more monopolistic, and first mover advantage is becoming ever more powerful. There will likely be many more so-called "abuse of dominance" cases that involve intellectual property.
Add that to the growing difficulties facing foreign companies seeking to build scale in China and the result is likely to be two pools of capital that are increasingly sealed off from each other; one Chinese and one foreign. That will especially be the case when it comes to sensitive technology deals.
The outcome is likely to be fewer transactions between American and Chinese companies and fewer deals globally as both sides increasingly embrace financial protectionism. "Nobody is gearing up for transactions," the Beijing lawyer said. "Instead, we are gearing up for winter."
Henny Sender is the Financial Times' chief correspondent for international finance, based in Hong Kong, and contributes occasional columns to the Nikkei Asian Review.