The promulgation and enforcement of China’s Anti-Monopoly Law (“AML“) after more than a decade of consideration represent a landmark of China’s economic reform.
2011 marks the third anniversary of the commencement of AML. So far, notwithstanding that China’s antitrust regime is not fancy, AML enforcement agencies: the Ministry of Commerce People’s Republic of China (“MOFCOM”), the National Development and Reform Commission (“NDRC“), and the State Administration for Industry and Commerce (“SAIC“) have finalized the enforcement guidelines to be implemented in the years ahead and are beginning to use their powers.
After relatively quiet years in the terms of AML enforcement, several worth-mentioning enforcement actions in 2011 indicate agencies intensify their enforcement efforts. Let’s look at the general situation of AML enforcement in 2011 at first, and then focus on the recent significant enforcement actions against the large State – Owned Enterprises (“SOEs”).
Overview
Merger Control
From January to mid-December, 2011, MOFCOM received a total of 194 merger controlled filings.[1] Among the 160 closed cases, four cases were granted conditional approval (3%) and five cases were withdrawn by the applicants after case acceptance (3%). Even if the enforcement of the merger provisions of AML has been more active and visible than the enforcement of the non-merger provisions, long timeframe to obtain approval from MOFCOM is an obstacle. Also, MOFCOM’s emphasis on effects of mergers in China even if the relevant market is worldwide makes the Western companies’ concerns increase significantly.
To illustrate, in a merger between Russian potash producers Silvinit and Uralkali, MOFCOM conditioned its approval of the planned merger on compliance with four obligations, intended to secure the availability of supply to Chinese customers, although the global potash market might have remained freely competitive.
Abuse of Dominance
So far, private enforcers are quite active in abuse of dominance litigation, although successful private actions continue to be absent[2]. Courts have proven relatively conservative in their decision-making and require the parties to establish a high level of proof of a dominant market position to support a claim. They demand substantial evidence to be produced by the parties and refuse to base a finding of a dominant position solely on media reports or the parties’ own statements about relevant market shares.
On the administrative side, NDRC by means of a penalty decision, imposed fines of approximately 1.07 million USD on two companies: the Shandong Weifang Shuntong Medicine Co., Ltd. and the Shandong Weifang Huaxin Medicine Trading Co., Ltd. Fines related to the companies’ exclusive supply arrangements with downstream customers involving compound reserpine tablets, a kind of anti-high pressure medicine taken by millions of Chinese.
This is the highest fine NDRC imposed for antitrust infringements since the commencement of AML in China.
Significantly, the investigation into price discrimination practices by China Telecom and China Unicom was announced by NDRC in November, 2011, more details referring to Special Feature below.
Cartels
In 2011, a handful of reported cartel decisions have been made, including several local cartels among Chinese small and middle sized enterprises, and the largest fine imposed by the agencies amounted to no more than 100,000 USD. Obviously, the anti-cartel enforcement is insufficient.
Most of the decisions so far were made on the basis of Price Law rather than AML, reflecting that NDRC is more accustomed to act as a price supervisor than a competition enforcement agency. This indicates that under the influence of the planning economy, Chinese government is more confident in the administrative rulings than in regulations relating to a market competition.
Realizing the importance of an anti-cartel enforcement for developing countries, the increased anti-cartel enforcement in China is widely expected in the future.
Another issue deals with the unclear rules of leniency policy allowing an applicant disclosing the prescribed evidence to the authorities receive a lighter penalty. Both NDRC and SAIC have issued leniency policies in 2011, which mainly provide for the procedural rules. The substantial rules are obscure, for instance, whether an applicant disclosing the prescribed evidence to the authorities will automatically receive leniency or whether the authorities retain discretion enabling them to refuse leniency remains unclear.
Consequently, the unknown rules of leniency policy may simply be the obstacle to more vigorous anti-cartel enforcement because there are fewer entrepreneurs willing to apply for leniency.
Special Feature
Due to systematic obstacles in China’s transitional economy, AML’s enforcement in the preliminary stage has been facing some difficult challenges.
Accordingly, the competition neutrality problem is a significant concern. Some people believe SOE’s controlling position in the key industries and sectors is the foundation of the socialist market economy.
Fortunately, at the end of 2011, NDRC announced its investigation towards two of China’s largest SOEs, China Telecom and China Unicom, for the alleged abuse of a dominant market position.
Meanwhile, MOFCOM granted a conditional approval for the proposed establishment of a joint venture involving a SOE Shenhua Coal to Liquid and Chemical Co., Ltd and a big multinational enterprise GE (China) Co., Ltd, which is the first adverse MOFCOM decision directly addressing SOEs. Therefore, it has been clear that Chinese competition enforcement agencies are taking seriously the notion that SOEs shall be on the same competitive playing field as every other private enterprise, which is a very positive sign.
The announcement of the investigation into China Telecom and China Unicom was made by Li Qing, a deputy director of the price supervision and antimonopoly department of NDRC, in an interview with the state-owned CCTV.
NDRC believes that China Telecom and China Unicom hold a dominant market position in the relevant broadband related market in China. Moreover, they charge rivals higher fees while offering favorable prices to companies that are not competing with them. If the allegation of price discrimination proves to be true, the two companies may be liable for a fine of 1% to 10% of their respective revenues of the previous year, which could amount to hundreds of millions to billions of Chinese Yuan.
It is understood that the specific trading relationships at issue are those between the SOEs and the certain broadband suppliers that lease access to the broadband network operated by the SOEs and resell that access to consumers – in competition with the SOEs or affiliate companies (which thus are present in both the upstream and downstream markets). Since full details remain unclear, controversy relating to illegality findings remains open.
The existence of some self-contradicting views and evidences, increase the concern of inaccurate judgment.
To illustrate, SOEs are blamed for their monopoly pricing and price squeezing at the same time. Besides, the real access fees they charge rivals are the discounted listed access fees. It seems that the decision findings still have far-reaching legal consequences. Moreover, after the investigation had been confirmed, China Telecom and China Unicom made commitments to NDRC.
They promised to lower Internet prices and improve connection speed, although it was criticized as too vague to be accepted.
After all, although people are still eagerly waiting for NDRC’s decision on whether or not it will accept the settlement proposal, Beijing’s determination of showing their teeth to all AML violators has inspired Chinese people’s hearts, to a great extent.
Mingyan XU Associate of Shanghai All-broad Law Firm, her practice focusing on competition law. Ph.D candidate (competition law) at East China University of Political Science and Law. [1] The amount increased by 43% compared to the same period in 2010. Among the received filings, 179 filings have been accepted and 160 filings have been reviewed and closed. [2] According to data released by the Supreme People’s Court, courts had accepted 43 first-instance civil AML cases as of the end of 2010. Among these cases, several cases were settled between the plaintiff and defendant, and most of the abuse of dominant position cases were dismissed by the court on the ground that the plaintiff failed to demonstrate sufficient evidence to show that the defendants possessed dominance in the relevant market. The other cases are pending trial.