Global menu

Our global pages

Close

China’s NDRC launches investigation into the pricing of baby-milk formula

    • Competition, EU and Trade - Competition e-briefings
    • Food and drink - Competition

    25-06-2013

    According to a report on MLex China*, the National Development and Reform Commission (“NDRC”), the Chinese Competition Agency responsible for all price related antitrust actions and investigations under the Chinese Anti Monopoly Law, has launched an investigation into the infant-milk formula sector following concerns over the price of formula in China.

    As well as its responsibilities as a competition regulator, the NDRC also has broad administrative and planning control over the Chinese economy and is responsible for studying and formulating policies for economic and social development and maintaining the balance of economic development in China. As such, the NDRC is investigating whether anti-competitive behaviour by international producers of baby-milk formula has driven up the cost of the formula for consumers in China.  Part of this review involves the examination of the underlying supply agreements between the international producers and their distributors in China to see whether these have had any anti-competitive  impact.

    News of the investigation will come as great relief to Chinese parents, particularly if it results in a decrease in the price of foreign produced baby-milk formula. Foreign produced formula has been in high demand in China ever since the 2008 baby-milk scandal, in which Chinese-made milk, tainted by the industrial chemical melamine, killed at least six infants and caused 300,000 others to fall ill. Since the out break of the scandal, foreign produced milk has become highly sought after by mainland Chinese parents worried about their children’s health and Chinese authorities have had to take action to restrict the amount of baby formula that can be transferred into mainland China (leading many parents to smuggle it in illegally from Hong Kong).  

    Following the wake of the 2008 scandal, the NDRC took steps to ensure that the price of foreign brands did not over-inflate in reaction to such increased demand from Chinese consumers. However, according to data from the Chinese Ministry of Commerce, there is still substantial disparity between the pricing for domestic and foreign produced formula, with domestic brands costing an average of 154RMB per kilogram and foreign brands costing over 200RMB per kilogram.

    Comment

    The NDRC has been criticised for its lack of high profile actions and investigations since the implementation of the AML in 2008. However, 2013 has started with a flurry of activity from the regulator and has seen it make some ground-breaking decisions. In January it imposed its first ever penalties on members of an international cartel, fining six LCD panel manufacturers from Taiwan and South Korea for their participation in the International LCD Panel Cartel. February saw the NDRC impose its largest penalty to date, fining two Chinese state owned alcohol manufacturers a combined 449 million RMB for including resale price maintenance clauses in their distribution agreements with resellers. 

    These recent decisions and the launch of this investigation into the pricing of baby-milk formula (along with its reported recent investigation of an unidentified pharmaceutical company) show that the NDRC is becoming more focused on pricing conduct and we can expect to see more enforcement actions in the near future.  

    Companies that have agreements in place with effects in China should be concerned about the NDRC exercising its power more widely and should be aware of the possibility of on-site investigations, dawn raids and substantial fines.

    *Article originally appeared on the MLex China service on 18 June 2013

    For more information contact

    < Go back

    Print Friendly and PDF
    Subscribe to e-briefings