VZCZCXRO0659
PP RUEHCN RUEHGH
DE RUEHHK #1943/01 1310342
ZNY CCCCC ZZH
P 110342Z MAY 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 6605
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001943 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB 
STATE PASS USTR 
USDOC FOR 4420 
 
E.O. 12958: DECL: 05/11/2031 
TAGS: ECON ETRD PREL PGOV CH HK
SUBJECT: COMPETITION LAW DEBATE AHEAD; LIKELY FOCUS TO BE 
ANTI-COMPETITIVE BEHAVIOR, NOT BREAK-UP OF DOMINANT PLAYERS 
 
REF: 05 HONG KONG 3765 
 
Classified By: Deputy Principal Officer Marlene Sakaue; Reasons: 1.4 (b 
/d) 
 
 
SUMMARY/COMMENT 
--------------- 
 
¶1. (C) On May 8, the Chairman of Hong Kong's Competition 
Review Committee told the Deputy Principal Officer (DPO) that 
his group's report on whether Hong Kong needs a competition 
law should be completed in mid-June and made public in early 
July.  The committee's present inclination is to assess a 
need for a competition law focused on anti-competitive 
behaviors like price collusion rather than to target market 
dominance.  Two key recommendations would be that the scope 
of the law not be sector-specific and that an existing 
competition advisory body be made into a formal legal entity 
of the Hong Kong Government (HKG).  The report will be 
followed by a period of public consultation.  The widespread 
annoyance here at high prices in the energy and consumer 
product sectors, dominated by conglomerates, along with a 
robust debate underway about Hong Kong's ability to remain 
competitive as part of a rising China, is setting the stage 
for an energetic and emotional public discussion once the 
committee's report is released.  Recent Legco activity 
suggests that the debate over a competition law is likely to 
pit directly elected legislators against those who represent 
functional constituencies.  END SUMMARY 
 
BASIS FOR PRESENT FOCUS ON COMPETITION LAW 
------------------------------------------ 
 
¶2. (U) Hong Kong is perhaps alone among advanced economies in 
lacking a comprehensive competition law.  There is 
sector-specific competition policy, and it is particularly 
effective in the area of telecommunications.  A Competition 
Advisory Group (COMPAG) has issued voluntary competition 
guidelines but has no power of investigation. 
 
¶3. (SBU) There is widespread sentiment here that market 
dominance and price collusion force consumers to pay 
unjustified premiums for day-to-day expenses such as: 
housing, electricity, basic foodstuffs, gasoline, laundry, 
and vitamins.  There are no "big box" stores in Hong Kong, 
although French retailer Carrefour tried to break in a few 
years ago.  Carrefour's inability to sustain operations was 
widely attributed to the existing 70 percent market 
concentration for groceries enjoyed by Wellcome (a Li 
Ka-shing holding) and Park-n-Shop (a Jardines holding). 
Wholesalers reportedly pressured Carrefour not to undercut 
the competition and threatened to withhold supplies from the 
firm's stores. More broadly, it has been argued that Hong 
Kong's overall competitiveness is compromised by small groups 
of companies earning excess returns at the expense of other 
firms and consumers. 
 
NEW CHIEF EXECUTIVE, NEW FOCUS 
------------------------------ 
 
¶4. (C) When Chief Executive (CE) Donald Tsang took over in 
March 2005, he faced a public and media that were 
increasingly focused on questions of business-government 
collusion.  Shortly after Tsang became CE, Financial 
Secretary Henry Tang created a Competition Policy Review 
 
SIPDIS 
Committee to assess the need for a comprehensive competition 
law.  Per reftel, we were told by one of the committee 
members that although Tsang was no fan of a such a law, he 
was far more flexible and politically savvy than his 
predecessor and would not fail to realize that the political 
benefits of passing such a law made it a no-brainer.  Our 
contact said that the HKG could use a competition law as a 
shield against increasingly strident allegations that it is 
in bed with leading business tycoons. 
 
REPORT LIKELY TO PUSH COMPETITION LAW 
------------------------------------- 
 
¶5. (C) On May 8, the Chairman of the Competition Review 
Committee, Christopher Cheng, told the DPO that the 
long-awaited review should be finished in mid-June and made 
public no later than early July.  Given strong opposition in 
many business quarters to a competition law, Cheng gave 
credit to Financial Secretary Tang for taking the initiative 
in addressing this difficult issue.  When the Chief Executive 
 
HONG KONG 00001943  002 OF 002 
 
 
included the competition law question in his October policy 
address, Cheng,s review received a further boost.  After 
holding a wide range of interviews, including a quietly 
conducted seminar with foreign experts invited to Hong Kong, 
the overall sentiment of committee members is that Hong Kong 
firms, market dominance is not a problem in itself )- 
provided they do not use this dominance to carry out unfair 
practices.  Therefore, the committee is inclined to recommend 
the need for a law whose goal would clearly not be to go 
after large companies, but instead create new powers in the 
HKG to take on specific behaviors deemed anti-competitive, 
such as price collusion. 
 
¶6. (C) Cheng envisions a competition law that is not sector 
specific.  COMPAG would be turned into a formal HKG entity 
with limited powers to look into anti-competitive behavior. 
This body would "not be a bunch of bureaucrats checking up on 
all of our companies."  Any sanctions levied would be 
strictly civil in nature. 
 
¶7. (C) Cheng said that after the committee's report is 
issued, there will be a period of public consultation about 
the specifics of any new proposal for a competition law.  One 
goal of this exercise would be "to inject grass-roots 
sentiment into the process and avoid having special interests 
write the law." 
 
ATTITUDES IN FLUX 
----------------- 
 
¶8. (C) Cheng noted liberalizing views in the business and 
political communities with regard to a competition law but 
pointed out opposition in some quarters (e.g., Chinese 
Manufacturers Association) based on two arguments: small- and 
medium-sized enterprises would be burdened by further 
regulation and competition policy is better pursued on a 
sector specific basis.  The Federation of Hong Kong 
Industries, for example, argued on May 10 for a sector 
specific approach, although comments from Deputy Chairman 
Cliff Sun appeared to break new ground by suggesting 
acceptance of a stronger competition watchdog role for 
COMPAG.  Also on May 10, the Civic Party's Ronny Tong called 
for a fair competition law and establishment of an 
independent competition authority with investigatory and 
adjudicative powers.  Previously, in 2005, the Hong Kong 
General Chamber of Commerce (HKGCC) had relaxed its position 
somewhat by releasing a report that did not reject the idea 
of a general competition law in the long run, even describing 
what such a law should look like, i.e., it ought to cover all 
sectors (to avoid a hodge-podge of sector specific rules and 
bureaucracies) and be administered by a small competition 
agency with an appeal board and oversight body composed of 
business sector and consumer body representatives.  Earlier 
this year, however, HKGCC Chairman David Eldon published an 
opinion piece in the organization's monthly bulletin making 
the case for strengthening existing pro-competition 
institutions and suggesting that if there is to be a 
competition law, it should be minimalist. 
 
LOOK FOR AN ENERGETIC DEBATE 
---------------------------- 
 
¶9. (C) The follow-on dialogue among legislators, the business 
community, and the public is likely to be lively.  Just last 
week, on May 3, legislators rejected a motion calling for a 
comprehensive competition law.  Their five-hour debate ended 
with functional constituency legislators rejecting the motion 
but directly elected legislators overwhelmingly in favor. 
Given continued focus in Hong Kong on business-government 
collusion issues as well as an ongoing public discussion 
about competitiveness vis-a-vis the mainland, the occasion of 
Cheng's report is likely to draw all sides into an emotional 
discussion.  At issue will be legislation that for many 
symbolizes a need in Hong Kong to build a fairer society and 
attain a more secure place in the global economy by 
increasing competition and reducing favoritism towards what 
are seen as excessively dominant business conglomerates. 
Cunningham