When China resumed sovereignty of Hong Kong in 1997 under its ‘one country, two systems’ rule, there were fears that this duality would not last and Hong Kong would fall under communist rule. But with Hong Kong passing a new competition law that mirrors EU and Australian law, it would seem that it is the West rather than China that is having the greater influence over regulating the special administrative region.

The new law prevents anti-competitive practices, including price-fixing cartels and agreements between competitors to limit production and bid-rigging in tenders. There will also be a new competition commission that will investigate alleged infringements and a tribunal to decide in such cases.  

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Levelling the playing field

The new law should open up sectors in Hong Kong that have traditionally been dominated by a handful of players. This should be good news for foreign investors. “Over time we may see an increase in foreign interest in sectors where, at the moment, there are only a few players and foreign investors are keen to get involved, such as transport, property development and retail supermarkets,” says Joshua Cole, partner in the Hong Kong office of the international law firm King & Wood Mallesons, and member of the company's foreign direct investment group.

Indeed, greater competition should enhance Hong Kong’s success in attracting FDI, which has defied the global financial crisis and continued growing at an impressive rate. According to United Nations Conference on Trade and Development (Unctad) figures, Hong Kong's FDI inflows stood at about $54bn in 2007, rising to a record high of $83bn in 2011. Hong Kong has also come top in Unctad’s FDI Attraction Index, which ranks countries according to their success in attracting FDI over a rolling three-year period, for the second year running. 

Yet the new law has taken a long time to come into being because Hong Kong’s parliament struggled with the notion of greater regulation. When the law was introduced, the Hong Kong Chamber of Commerce said the law was “far from desirable” and needed perfecting “otherwise the competitiveness of Hong Kong could be undermined”. Additionally, the competition law came on the heels of a new law on the national minimum wage and, as such, has been viewed as part of a general trend to regulate business; an anathema in a place that views itself as the world’s freest economy.

Missing the target?

Doubt over the efficacy of the competition law is in part because the legislation can affect what may be quite innocent industry agreements and practices. “Sometimes participants in a sector may have arrangements in place to make the sector work more efficiently, but those arrangements may be inadvertently anti-competitive under the legislation,” says Mr Cole. However, foreign investors are likely to be familiar with the nuances of competition law as in many cases it will be practised in their own country.

On balance, the new law should open up closed industries in Hong Kong’s economy so that the capital of capitalism can retain its title for years to come.