China issues record anti-trust fines for formula firms

Chinese authorities have issued fines totaling 670 million yuan (108 million U.S. dollars) for six baby formula companies operating on the mainland following an anti-trust probe, the country's top economic planner announced Wednesday.

The six companies are Biostime, Mead Johnson, Dumex, Abbott, Friesland and Fonterra, the National Development and Reform Commission (NDRC) said.

Xu Kunlin, chief of the commission's pricing department, said the result of a probe initiated in March showed that the formula producers set minimum resale prices for distributors and punished distributors who sold their products at lower prices by suspending supplies or ending contracts.

"These practices caused milk powder prices to remain a high level, restricted competition in the market and harmed the interests of consumers," Xu said.

Xu said Biostime was fined 163 million yuan, or 6 percent of its sales revenues for 2012, due to its serious violations of anti-monopoly laws and subsequent failure to correct its actions.

Mead Johnson was fined 204 million yuan, or 4 percent of its revenues last year, because it did not actively cooperate with investigators, Xu said.

Dumex, Abbott, Friesland and Fonterra each received fines equal to 3 percent of their 2012 revenues, as they cooperated in the probe and actively moved to correct their practices, Xu said.

They were fined 172 million yuan, 77 million yuan, 48 million yuan and 4 million yuan, respectively.

Formula producers Wyeth, Beingmate and Meiji were not fined because they cooperated with investigators, provided important evidence and corrected their practices, Xu said.

Shi Jianzhong, a professor at the China University of Political Science and Law, said China's anti-monopoly laws call for a fine of 1 to 10 percent of a company's sales revenues for the previous year for companies that engage in illegal pricing practices.

"The NDRC rendered different penalties to the formula producers by taking into consideration the nature of their violations, their cooperative response and the overall effect of their corrective measures, " Shi said.

Biostime said in a Wednesday statement that it will pay its fine in a timely manner and strengthen internal management to ensure that its operations are in accordance with Chinese laws and regulations.

Demand for baby formula is booming in China, but confidence in domestic products has plummeted since 2008, when melamine-tainted milk killed six infants and sickened 300,000 others.

NDRC data showed that some foreign brands have increased their prices by up to 30 percent since 2008, with some prices reaching nearly twice as much as those of domestic brands.

China imported 240,000 tonnes of infant formula in the first quarter of the year, up 23.7 percent from the same period last year, demonstrating significant demand from Chinese parents for foreign-brand baby formula, data from the General Administration of Customs showed.

Wang Xiaoye, an expert on anti-trust issues and a professor at the Chinese Academy of Social Sciences, said the fines imposed on the formula producers are the largest fines ever imposed by the NDRC for anti-trust infringements.

"It is a warning not only to the dairy sector, but also to other industries that China is strengthening anti-trust enforcement," Wang said.

In January, the NDRC imposed a 353-million-yuan anti-trust fine on six LCD manufacturers including Samsung and LG.

In February, high-end Chinese liquor producers Kweichow Moutai and Wu Liangye were fined a combined total of 449 million yuan for price-fixing.