With a trend towards increasing investigation against administrative monopoly, there will probably be more cases against administrative monopolistic conducts in 2015. Companies may, as plaintiffs, sue local governments or its authorized institutions for administrative monopoly.
It is specified under Article 8 of PRC Anti-Monopoly Law that administrative departments or organizations authorized by laws or regulations to perform the function of administering public affairs may not abuse their administrative power to eliminate or restrict competition. Accordingly, two factors shall be taken into consideration in identifying administrative monopoly: abuse of administrative power, and impact of eliminating or restricting competition.
Companies as plaintiffs shall provide the prima facie evidence as to existence of administrative monopolistic conducts, while the defendant may rebute as to statutory exceptions.
1. Abuse of Administrative Power
It may happen that some local governments or administrative departments, without upper-law basis, issued normative documents to or signed contracts to grant local preferential treatments as investment incentives. Taking local tax preferential treatments as an example, institutions authorized by local government may promises such return of paid taxes from local fiscal income to certain investors, which generally lacking concrete legal basis. Accordingly, it is not difficult for a competitor to prove the existence of abuse of administrative power. Certain red-headed documents involving preferential treatments issued by the local governments shall constitute initial evidence for such purposes, unless upper-law basis has been given by the administrative department.
2. Eliminating and Restricting Competition
Articles of PRC Anti-Monopoly Law shall be referred to in proving eliminating and restricting competition rather than simple application of per se illegal rule or rule of reason. PRC Anti-Monopoly Law merely requires an effect of elimination and restriction of competition to establish such, without requiring comprehensive analysis or measurement of other factors, unless the defendant administrative department successfully proves statutory exceptions (as stipulated under Article 15 of PRC Anti-Monopoly Law). Accordingly, while the plaintiff is to provide initial evidences for anti-monopolistic conducts (including impact on competition), the defendant is to prove for statutory exceptions.
The burden of proof for the defendants in administrative cases is heavier than that of the plaintiff. It is enough for the plaintiff to prove initially that there is administrative conduct and it has the effect of restricting competition. As long as the beneficiary of the preferential treatments obtains an unfair competing advantage, which restricting the competing freedom of other competitors and affecting the fair competition in relevant markets, it can be concluded that there is administrative monopoly. Administrative department may cite statutory exceptions provided under PRC Anti-Monopoly Law though. Also, a third party (probably the beneficiary of preferential treatments) may provide supplementary evidence if any in favor of the administrative department.
Preferential treatments such as favorable tax rates, levy reduction and exemption, fiscal subsidies or payback, preferential land premium or bidding conveniences, if given to investors at the sole discretion of institutions authorized by local governments, are highly likely to be identified as administrative monopolistic conductseliminating and restricting competition, and become risky for foreign investors as incentive recipients.