department suspended CIFST operations for two months and ruled that CIFST could no longer operate in the name of IRMA.

Monopoly or lack of confidence?

Many people have blamed the instant noodle price hike on industry monopoly. However, apart from its monopoly, the incident reflects the lack of competitiveness among instant noodle producers.

Higher prices of ingredients added to the higher cost of producing instant noodles, pushing the producers to raise the noodle prices. From this perspective, the price hike of some companies was understandable. However, the collective price hike of the whole industry was groundless because not all companies faced the same cost problems.

Take Master Kong for example. This Hong Kong listed company's public report showed that it was running well and that its revenue had increased significantly. According to AC Nielson statistics, the Master Kong brand instant noodles hold 43.3 percent of the market share in China. Moreover, its first-quarter report showed that the turnover of instant noodle business increased 29.44 percent to $351 million, accounting for 52.07 percent of all revenue, with profits of $24.6 million, up 30.83 percent. Obviously, Master Kong isn't struggling to make ends meet. The China branch of IRMA had contended, "nearly all instant noodle businesses are loosing money."

Master Kong should have been the least likely to raise its prices. Further, it could have grasped more market share when other brands were raising prices and its own prices were kept low. Why did Master Kong follow suit?

At present, there are over 100 instant noodle producers in China. The first six companies' turnover accounted for 80 percent of the whole industry. In other words, there are at least six companies like Master Kong that had no price hike pressure and could have used the opportunity to take more market share and promote their social image. They didn't do that.

Participating in and supporting the price alliance uncovered the fact that some companies lack confidence in their competitiveness.

NDRC officials pointed out that the companies have right to decide prices. In the first half of this year, the import price of palm oil and wheat powder rose significantly, pushing up the cost of instant noodles. Under such circumstances, a price hike is understandable. However, the price hikes must comply with the Price Law, which said it is strictly forbidden that industry associations organize price alliances and manipulate the prices.

Foot dragging by authorities

Last year, IRMA started to organize the price hike but it wasn't until this year that they were implemented. The year-long preparation of the price hike exposed the inefficiency of the government administrative function.

The NDRC report showed that on December 26, 2006, IRMA held a meeting in Beijing, researching the rising cost of producing noodles generated by palm oil and flour price hikes. At the meeting, producers decided the time and the plan of action to raise noodle prices.

The IRMA raised the average price of high-end instant noodles from 1.5 yuan to 1.7 yuan starting June 1, coming on the heels of an association meeting on April 21 in Hangzhou.

On July 5, IRMA held another price coordination meeting in Beijing and decided to raise the price starting July 26.

During these meetings, the association also printed information of the decisions in an industry magazine and sent the price hike information to industry leaders. Meanwhile, it also told the media of the price hike. This means the government actually knew about the association's activity, but failed to do anything about it. Other food associations also mentioned that they are going to follow suit. However, after receiving complaints from consumers and lawyers and fearing the occurrence of large-scale inflation, the NDRC began to take action. After this the civil affairs department announced it would punish those involved. The problem exposed the slow reaction of the government departments and their inefficiency in monitoring the market.

If not for inflationary pressure, it is difficult to say if the association would have been punished or not.

"The Chinese market economy has been developing faster than ever," said Wang Jianzhong, sociology professor with Renmin University of China. "The administrative function of government departments over economic activities has changed a lot. The key function of the government is to safeguard fair competition, investigate and punish those who distort the market order."

According to the NDRC, the government has launched a campaign to investigate food prices at all levels, striking at price collusion and punishing rumormongers.

Those measures might have some effect in the future.