Under The Same Blue Sky

Two pioneering legal actions in China involving high-profile companies have been settled, with one case highlighting the fresh powers handed to consumers under the country’s new anti-monopoly laws.

China Mobile, the world’s largest mobile phone group with 500m subscribers, has agreed to pay Rmb1,000 ($146) to settle a lawsuit filed by a customer who alleged it had abused its mono-poly position to extract unfair revenue from subscribers.

A Shanghai court has also thrown out a case against Nasdaq-listed Shanda Interactive Entertainment because the plaintiff had insufficient evidence to prove its allegations.

The Shanda ruling is the first legal judgment from a mainland court under China’s revamped competition regime, which was introduced in August 2008.

China Mobile and Shanda were in the first batch of mainland companies facing legal action for alleged monopolistic practices, with cases involving China Netcom, Baidu and Sinopec awaiting settlement.

Zhou Ze, a Beijing-based civil rights lawyer, had demanded China Mobile refund Rmb1,200 because of the allegedly “unfair” extra monthly Rmb50 rental fee charged to high-end customers who do not use prepaid phone cards.

The settlement, mediated by a Beijing court and which China Mobile agreed without accepting liability, could trigger thousands of copycat cases against Chinese companies as consumers utilise their new rights.

China Mobile was unavailable for comment.

Mr Zhou predicted that other Chinese companies with exposure to large numbers of consumers, including telecoms groups and oil majors, would “see more such complaints in the future”.

He told the Financial Times: “They all have a history as state-owned monopolists and that is where their mindset comes from. Consumers will stand up to that.”

Legal experts warn foreign companies operating in China to pay close attention to the cases, as emerging rulings could radically alter corporate behaviour.

In the Shanda case, the court ruled against a small online publisher, which alleged that Shanda had abused its dominant position in the market for online literature.

The case centred on the plaintiff’s ultimately fruitless attempt to commission two authors to write a sequel to a novel series originally published by Shanda, an internet portal dominated by online games.

But some Chinese lawyers warn that a flood of cases is unlikely to emerge.

“I think there’s no reason to be overly optimistic,” said Li Changqing, who represents a small Chinese medicine trader in the lawsuit against Baidu, the online search company. “The burden of providing evidence is a big problem. The law is still too abstract.”

China will this week launch its long-awaited Nasdaq-style stock market with 28 companies lined up to list on the new exchange, including China’s first listed film company.

Shang Fulin, chairman of the China Securities Regulatory Commission, on Saturday said the new market would open on October 23, according to the official Xinhua news agency.

Investors have not demonstrated overwhelming appetite for the first companies to conduct IPOs ahead of listing on China’s new Growth Enterprise Market. The Shenzhen-based market is aimed at funding technology and innovation-driven start-up companies, in line with Beijing’s plans to shift the Chinese economy from its traditional export base.

Small and medium-sized companies in this sector have enjoyed little access to the flood of bank lending that has been available to larger and state-owned enterprises since the beginning of this year.

Shares in nine companies involved in a third round of subscriptions for the board were oversubscribed.

The listing of Huayi Brothers Media, the well-known Chinese film company, demonstrates the Chinese government’s recent encouragement of companies in the highly-regulated culture industry to seek public funds to boost their size and quality.

Beijing, which has been considering launching such a board for nearly 10 years, hopes it will not only provide funds for cash-starved start-ups, but eventually even rival Nasdaq and London’s Aim market as a source of small Chinese company funding.

The launch of the new board could have a psychological impact on investors in other Chinese markets who are already concerned about the large number of recent IPOs draining liquidity from the market, stock market analysts said.

But Peng Yunliang of Shanghai Securities says he does not think the launch of the GEM will do much to depress other mainland markets because the small size of the second board.

Analysts are sceptical about the GEM’s prospects for success.

“China’s problem is not so much the number of boards but are enough of those companies lined up for funds genuine viable long-term businesses?” says Fraser Howie, author of Privatizing China: Inside China’s Stock Markets. “Nasdaq has got huge critical mass with major listings. It will be much harder for the GEM to achieve that critical mass”