From News, Page 7, Issue no. 384, September 8, 2008
Translated by Liu Peng
Original article: [Chinese]

An intermediate court in Beijing had on Sept 4 rejected an antitrust law suit filed against the State Administration of Quality Supervision, Inspection and Quarantine (SAQSIQ).

The reason given was that the filing of the case failed to comply with the active timeframe for suing.

Lawyer Zhou Ze,of Beijing Zhanda Law Firm, was representing four Beijing-based counterfeit-prevention enterprises in filing the case on Aug 1, the day when China's first Anti-Monopoly Law came into effect.

Zhou told the EO he would file an appeal with the court.

The four Beijing-based enterprises accused the SAQSIQ for using its administrative power to force enterprises - falling under nine types of industries and making 69 kinds of products, including food items and home appliances - to join an electronic supervision system for quality control.

Under the system introduced in 2005, the enterprises concerned must register and obtain electronic quality control bar codes for their products before sales.

The enterprises must pay 600-yuan in annual fee to register with a supervision company—Citic Guojian Information Technology Company (CGITC), which the SAQSIQ had a stake but had on Aug 29 this year announced a total withdrawal from.

Conflicting Data of Stakeholders
According to industry players, the electronic supervision system was first announced in an official document numbered 183 issued by the SAQSIQ in April 2005.

The EO obtained the document and found it stated that the system was jointly established by the SAQSIQ, Citic Group and China Telecom.

Upon checking company registration information with the industrial and commercial administration, the EO found that CGITC was in-charged of managing and operating the electronic supervision system.

CGITC had three shareholders - CITIC 21st Century Telecom Company held 50% stake by investing 30 million yuan; the Information Center under SAQSIQ held 30% shares by injecting 18 million yuan; and China Huaxin Post & Telecom Economic Development Center held 20% stake by forking out 12 million yuan.

The major stakeholder, Citic 21st Century Telecom Company was a subsidiary of Citic 21st Century Corporation listed in the Hong Kong Stock Exchange.

However, according to public information, the state-owned investment company Citic Group - mentioned in the earlier No.183 document as one of major stakeholders in the joint-venture supervision system - only held 0.62% of shares in Citic 21st Century Corporation.

The biggest shareholder of Citic 21st Century was Chen Xiaoying, controlling a total of 63.3% of shares in three subsidiaries under the corporation.

Based on the above information, Lawyer Zhou pointed out that the SAQSIQ had misled enterprises by stating it and Citic Group were the main stakeholders for the system, but in reality it was in the control of a private firm - CGITC - thinly affiliated with the Citic Group.

Zhou added not only Citic Group was a minor player in the whole scheme of thing, China Telecom too was only distantly associatied with the system through its subsidiary Huaxin Post and Telecom.

"Yet the SAQSIQ publicized the supervision system as if it was a pet project of major state-owned enterprises," claimed Zhou.

SAQSIQ withdrawal
The SAQSIQ spokesperson Liu Deping again reassured the EO on Sept 5 that the main stakeholder of CGITC was Citic Group; but when asked for its shareholders' information, Liu was evasive: "I am not very sure of the specifics, but as far as I can tell, the SAQSIQ Information Center has withdrawn from CGITC." 

On April 17 this year, the SAQSIQ had held a press conference, saying "Given that the electronic system has come into a stable mode of operation, the SAQSIQ will no longer participate in the system's management and operation and has transferred its shares to Citic Group. The relevant procedures are in the approval process."

On August 29, the SAQSIQ released a news briefing, saying it had officially withdrawn the shares from CGITC on April 11 and the move was approved by CGITC board of directors on April 14.

However, as of September 3, the EO had yet to find any record of SAQSIQ withdrawal in the industrial and commercial administration's data.

When queried, Liu told to EO that its Information Center had completed the internal withdrawal procedures but met great resistance when dealt with the external procedure.

When pressed further on whom did SAQSIQ transferred its stakes to, Liu ignored the point and reiterated that its Information Center held no more share in CGITC.

Aiming for a Slice of the Big Cake
There would be some 200 billion yuan worth of value-added arising from the new logistic information sharing platform under the CGITC's electronic supervision system, according to the annual report of Citic 21st Century Corporation released on July 30 this year.

In December last year, the SAQSIQ issued a document demanding enterprises concerned to register with the supervision system, and from July 1 this year, these enterprises could only produce and sell their products after abtaining electronic supervision bar codes. The final compliance deadline was set at December 31, 2008.

The EO learned that each enterprise must pay 600 yuan in signing up with the system to obtain two electronic-keys (300 yuan each) and thereafter, they could download and print the supervision bar codes.

The registration fee alone would have contributed an astronomical amount of income to the CGITC considering the number of enterprises involved.

From its official website, the EO learned that as of Sept 5, some 70,000 enterprises had filed in their information with the system, but few had activated or obtained their keys as yet.

The system's participation guide placed online disclosed that it "served the interest of several millions enterprises who produce trillions of products; it has an enormous database and professional customer service center".

One of the services provided was a hotline for consumers to check on products compliance information. The website had in May published the cost for telephone enqruiry by dialing 95001111 as 0.3 yuan per minute for local call, the same charge applied to each enquiry through short messaging system.

The hotline service provider was Beijing Honglian 95 Information Company, a subsidiary of Citic 21st Century. In addition, the latter had also publicly announced that two other of its subsidiaries would participate in downstream businesses related to the electronic supervision system.

On August 29, the SAQSIQ held a news briefing saying that the log-in registration fee was the only charge the CGITC imposed on participating enterprises. In addition, it announced that the hotline service had been changed into a free service.

Complaints from Industry Players
Many industry players from food enterprises told the EO that despite numerous complaints and controversies, the SAQSIQ had insisted on pursuing the electronic supervision system.

Industry players generally agreed that the 600 registration fee was bearable, but the problem came from having to paste supervision bar codes onto each and every product.

A research by China National Food Industry Association revealed that the extra cost incurred ranging from hundreds of thousands to millions, depending on the nature of business. The association claimed that for food enterprises, the cost would be higher, as their products were usually distributed in large quantity but in small packaging.

Take chocolate and candy producer Mars Incorporated for example, in 2007, its product came in 2.84 billion packages, if it joined the electronic supervision system, the cost to add bar codes would be 120 million yuan per year.

Shineway Investment Development Company revealed that if every package of ham it produced was to be marked with the electronic code, it would lead to 300 million yuan in additional cost each year.

Upon receiving such complaints, the SAQSIQ issued a statement in February, saying products classification would be divided into type A and B, the former needed electronic code on every piece of product while the latter only needed the code on the larger packaging or container.

SAQSIQ spokesperson Liu Deping refuted that generating the electronic code would be costly, he claimed each stick-on code would cost no more than 0.2 yuan.