China: Competitive edge
At the beginning of August 2008, after more than 14 years of discussion, the new People's Republic of China Anti-Monopoly Law (AML) came into force. The AML introduces to China similar competition law principles to those found in the other major jurisdictions. The AML applies to all 'business operators', including natural and legal persons and any other entities that either produce goods or supply services. It is not clear whether and, if so, to what extent the AML will apply to Chinese state-owned enterprises (SOEs). This may potentially have a significant effect on the scope of the AML. Geographically, the AML is extra-territorial.
After 14 years of procrastination, China has finally put its long-awaited anti-monopoly law into effect
At the beginning of August 2008, after more than 14 years of discussion, the new People’s Republic of China Anti-Monopoly Law (AML) came into force. The AML introduces to China similar competition law principles to those found in the other major jurisdictions.
The AML applies to all ‘business operators’, including natural and legal persons and any other entities that either produce goods or supply services. It is not clear whether and, if so, to what extent the AML will apply to Chinese state-owned enterprises (SOEs). This may potentially have a significant effect on the scope of the AML. Geographically, the AML is extra-territorial.
‘Monopolistic agreements’ are defined in the AML as any agreements, decisions or actions that ‘exclude or restrict competition’ and are prohibited. The AML specifically prohibits certain types of agreements between competitors, including agreements involving price fixing, restrictions on production and the division of territories. For non-horizontal agreements, the focus of the prohibition is on price-related provisions. The Chinese authorities also have a broad discretion to prohibit other types of agreements that exclude or restrict competition.
There are, however, a number of exceptions for certain types of agreement that offer benefits which outweigh their anti-competitive effects; for example, agreements that result in certain efficiencies.
The AML stipulates that business operators occupying a dominant market position must not abuse this position to exclude or restrict competition. Dominance is presumed, though rebuttable, where a single business operator has a market share above 50%. There are also rebuttable presumptions of collective dominance but it is not clear in what circumstances these will apply.
The AML contains a non-exhaustive list of acts that may constitute an abuse of a dominant position, including: selling/purchasing at unfairly high/low prices; bundling of products/services; imposing unreasonable trading conditions; refusing to trade; and discriminating between counterparties.
All such activities, except the first, may be permitted where there is ‘valid reason’, but no guidance is provided on what this means. The AML stipulates that concentrations which satisfy certain thresholds must be filed in advance with the Anti-Monopoly Enforcement Agency (AMEA) and must not be put into effect prior to clearance.
On 3 August, 2008, the State Council promulgated the Implementing Regulations on the Notification of Concentrations of Business, which sets out the following thresholds for the notification of concentrations:
(a) The aggregate global turnover of all business operators to the concentration for the preceding financial year exceeds RMB 10bn, and at least two business operators each have turnover in China exceeding RMB 400m; or
(b) The aggregate turnover in China of all business operators to the concentration for the preceding financial year exceeds RMB 2bn, and at least two business operators each have turnover in China exceeding RMB 400m; and
(c) In other cases, the AMEA may still investigate where the facts and evidence show that the concentration has or may have the effect of eliminating or restricting competition.
The AMEA will prohibit concentrations that have or are likely to have the effect of excluding or restricting effective competition in the relevant market. Alternatively, the AMEA can impose conditions on concentrations to reduce the otherwise potentially harmful effects on competition.
The AML provides for various penalties that may be imposed on business operators for breach of its provisions, including cease and desist orders, fines or orders to terminate or unwind implementation. No criminal penalties are provided for, although there may be civil liability to third parties who suffer harm as a result of the illegal activity. A leniency programme is provided for under the AML in relation to monopolistic agreements, but no details are given.
The AMEA is responsible for enforcement actions and has wide investigative power, including the power to conduct on-site investigations. It has recently been confirmed that, at least for an initial period, three existing government agencies will share responsibility for the enforcement of the AML:
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