Monopolistic and concerted conduct
Penalties and leniency programme


Since the Anti-monopoly Law's implementation in August 2008, antitrust authorities have mainly focused on industries that have a particular effect on quality of life, such as the automotive, consumer goods, insurance, construction materials, tourism, tobacco, telecoms and public utilities industries. In particular, the National Development and Reform Commission (NDRC) has launched several antitrust investigations into the automotive industry, which have attracted widespread attention. However, enforcement in the pharmaceutical industry has been relatively weak, even though the industry has a significant impact on quality of life. Despite some discussion and various rumours, neither the NDRC nor the State Administration for Industry and Commerce (SAIC) have penalised a pharmaceutical company over the past few years. However, in January 2016 the SAIC and the NDRC (respectively) published penalty decisions regarding pharmaceutical companies in:

  • the Chongqing Qingyang Pharmaceutical monopoly case;(1) and
  • the Allopurinol drug cartel case.(2)

The almost simultaneous decisions illustrate an intensified enforcement regime that is targeting the pharmaceutical industry.

Another important investigation took place in the pharmaceutical industry in July 2016. The NDRC published its penalty decision regarding Huazhong Pharmaceutical Company Limited, Shandong Xinyi Pharmaceutical Co, Ltd and Changzhou Siyao Pharmaceutical Co, Ltd, which had collusively reached and implemented monopolistic agreements. The companies received fines totalling more than Rmb2.6 million. Two types of monopolistic behaviour in upstream and downstream markets were identified:

  • the entering into and implementation of monopolistic agreements on the joint boycott of transactions in the estazolam active pharmaceutical ingredients (APIs) market; and
  • the entering into and implementation of a monopolistic agreement on collusively increasing and fixing prices in the estazolam active pharmaceutical tablets market.

The estazolam case is the first in which Chinese antitrust authorities have identified a cartel established by way of concerted conduct. Further, it is the second joint boycott case, following the Guangdong Panyu Animation and Gaming Monopoly case.(3) It indicates that antitrust authorities are increasing law enforcement efforts in the pharmaceutical industry and demonstrates how the NDRC has improved its handling of complicated cases.

Monopolistic and concerted conduct

Estazolam has sedative, hypnotic and anti-anxiety effects. It is listed as a nervous system drug in Class II (psychotropic drugs) in the National Basic Drug Catalogue and the National Low-priced Drug Catalogue. China has strict regulations on market entry standards and the manufacturing of Class II psychotropic drugs and has granted only four companies a licence to manufacture estazolam APIs. Of those four, only Huazhong Pharmaceutical, Shandong Xinyi and Changzhou Siyao manufacture estazolam APIs. They also manufacture estazolam tablets. The NDRC alleged that between September and October 2014 the companies met in Zhengzhou City, Henan Province to discuss business arrangements relating to estazolam APIs and tablets. At the Zhengzhou meeting, the companies reached a consensus that they would:

  • use estazolam APIs for internal purposes only; and
  • act concertedly to increase estazolam tablet prices.

Shortly afterwards, the companies gradually ceased the supply of APIs to other tablet manufacturers and increased estazolam tablet prices.

Under Article 13(2) of the Anti-monopoly law, 'monopolistic agreements' include agreements, decisions and other concerted conducts designed to eliminate or restrict competition. In the estazolam case, Huazhong Pharmaceutical communicated with Shandong Xinyi through meetings, calls and text messages to effect the cessation of supply and price increases – actions which constituted the offending monopolistic agreement. Changzhou Siyao did not actively participate in the conspiracy; however, it did not object to the collusion and later followed the other two companies' lead, which constituted concerted practice. The case marks the first time in eight years of Anti-monopoly law enforcement that the antitrust authorities have imposed a penalty for monopolistic concerted practice.

Two provisions guide the determination of concerted practice:

  • the NDRC follows Article 6 of the Provisions on Anti-price Monopoly; and
  • the SAIC follows Article 3 of the Provisions for Administrative Authorities for Industry and Commerce on Prohibiting the Conclusion of Monopoly Agreements.

There are nuanced differences between Article 6 of the Provisions on Anti-price Monopoly and Article 3 of the Provisions for Administrative Authorities for Industry and Commerce on Prohibiting the Conclusion of Monopoly Agreements. However, both articles consider the following major factors when analysing whether concerted practice has occurred:

  • uniformity;
  • the exchange of information;
  • whether there is a reasonable explanation; and
  • market structure and changes.

Table 1: detailed stipulations on assertion of concerted conduct




Did the companies commit acts uniformly?

Were the companies' price adjustment activities consistent?

Information exchange

Did the companies communicate their intentions or exchange information?

Did the companies communicate their intentions?

Reasonable explanation

Can the companies give a reasonable explanation for their concerted practice?


Other factors

  • Market structure
  • Competition
  • Market changes
  • Industry situation
  • Market structure
  • Market changes

The specific criteria that the NDRC used to assess whether concerted practice had occurred in the estazolam case are outlined below.

The uniformity of the acts committed by the companies is mainly reflected by:

  • the timing of each company's price increase, which was generally consistent;
  • the margin of each company's price increase, which was generally consistent; and
  • the fact that each company refused to supply estazolam APIs to downstream estazolam tablet manufacturers during the same period.

Information exchange
The companies discussed suspending the supply and increasing the price of estazolam tablets at the Zhengzhou meeting. Although they did not agree to an exact price increase, the other two companies did not expressly object to Huazhong Pharmaceutical's proposal. After the Zhengzhou meeting, Huazhong Pharmaceutical and Shandong Xinyi actively communicated about price increases through meetings, calls and text messages. The NDRC alleged that Changzhou Siyao had attended the Zhengzhou meeting and had not clearly objected to the proposal to collude. It had also failed to voluntarily and independently report the cartel to the antitrust authorities. Such behaviour constituted an information exchange with the other two companies. Evidently, avoiding active involvement will not absolve the accused; any tacit approval may be presumed to constitute an information exchange, which will in turn constitute significant evidence of concerted conduct.

Absence of reasonable explanation
Changzhou Siyao's defence was that the suspension of supply was a result of its limited capacity and was intended to protect its own demand for manufacture of the tablets. Further, Changzhou Siyao claimed that its decision to increase the price of estazolam tablets was based on neutral factors – namely:

  • data that it had collected from the market;
  • national policy; and
  • overall market competition.

However, the NDRC rejected these defences, largely due to the tacit understanding and coordination between the other two companies.

Market structure and changes
The NDRC concluded that the estazolam APIs market is a typical oligopolistic market. China has implemented rigid controls which inhibit the market entry of the manufacture of estazolam APIs. Only three companies manufacture estazolam APIs long term and it is hard for other companies to access the market. Further, estazolam APIs are a key ingredient in manufacturing estazolam tablets and tablet manufacturers are therefore highly dependent on the estazolam APIs manufacturers. The three investigated companies were easily able to reach a tacit understanding regarding the estazolam APIs market. Further, 14 estazolam tablet manufacturers had to cease production after the collusive suspension of the supply of estazolam APIs by the three companies in 2015, after which competition in the supply of estazolam tablets deteriorated rapidly. Therefore, the NDRC concluded that the joint refusal to supply by the three estazolam APIs companies had facilitated further collusive price increases.

The NDRC concluded that Huazhong Pharmaceutical, Shandong Xinyi and Changzhou Siyao had reached and implemented monopolistic agreements on the joint boycott of supply in the estazolam APIs market. Such behaviour had forced out other estazolam tablets manufacturers and eliminated and severely restricted competition in the estazolam tablet market. Further, reaching and implementing the horizontal agreements on increasing the price of estazolam tablets had directly caused a substantial price increase from the beginning of 2015, and such collusion had harmed consumer interests.

Penalties and leniency programme

The NDRC imposed different penalties on the three companies based on the nature, degree and duration of their respective behaviour, as well as their roles, their degree of cooperation and any other meritorious conduct.

Table 2: penalties in estazolam case


Grounds for mitigation of penalty

Fine amount

Fine as % of 2015 estazolam tablets market turnover

Huazhong Pharmaceutical

  • Played a leading role as organiser in reaching and implementing the agreements
  • Was the more serious offender
  • No grounds for mitigation of penalty



Shandong Xinyi

  • Participated in unlawful practices
  • Actively co-operated with the NDRC, which constituted meritorious conduct



Changzhou Siyao

  • Acted merely as a follower
  • Carried out fewer violations
  • Actively rectified its behaviour



A key aspect of the estazolam case is the NDRC's strict approach in applying leniency. During the investigation, Shandong Xinyi voluntarily admitted that the Zhengzhou meeting had occurred and detailed the content of the oral agreements. However, the NDRC refused to apply leniency because Shandong Xinyi's confession was volunteered only after the NDRC had uncovered key evidence. Instead, the NDRC imposed a lighter punishment on Shandong Xinyi in accordance with Article 27(1) of the Law on Administrative Penalties, which stipulates that "a party shall be given a lighter or mitigated administrative penalty if it has performed meritorious deeds when working in coordination with administrative organs during their investigation into violations of law".

In accordance with the NDRC Regulation on Procedures for Enforcement of Administrative Law on Anti-price Monopoly, the first three undertakings to report relevant information about monopolistic agreements and submit material evidence are entitled to leniency (ie, a penalty reduction or an exemption). The regulation does not elaborate on the precise timeframe for voluntary reporting in this context, whether before or after the initiation of the NDRC's investigation. Further, companies have previously received lighter punishment for voluntarily confessing after an investigation has commenced (eg, in the Zhenjiang Automobile insurance case).(4) According to the NDRC Guidelines for the Application of the Leniency Programme to Cases of Horizontal Monopoly Agreements (Draft for Comments), an undertaking involved in monopolistic agreements can still apply for leniency after an investigation has commenced. Article 6 of the guidelines stipulates that where a law enforcement authority has commenced investigation procedures, the evidence provided by the undertakings shall be of significant value to the final findings (ie, evidence that has a greater probative force or supplementary probative value in proving how the monopolistic agreements were entered into and implemented), which sets a high standard of evidence for the purpose of the application of leniency. This case reflects that the NDRC is gradually applying a more rigorous leniency standard compared with the prior and more flexible leniency programme. Although the guidelines are not yet in effect, the policy applied in this case is consistent with their principles.


The pharmaceutical industry has a significant impact on health and safety and quality of life. According to media reports, the NDRC has undertaken two industry inquiries into pharmaceutical and medical device manufacturers and distributors. This case marks a new beginning for antitrust enforcement in the pharmaceutical industry; the NDRC is expected to crack down on monopolistic cases in this industry more severely than it did in the automotive industry. According to the Notice of Launching Special Inspection on the Price of Drugs throughout the Country, promulgated by the NDRC in May 2016, the NDRC will focus on active ingredients and drugs which show abnormal price fluctuations. The NDRC aims to maintain fair competition in the pharmaceutical market to protect the legitimate rights and interests of patients and regulate drug prices.

The NDRC's pharmaceutical investigations have involved:

  • all types of company, including multinational, state-owned and private companies;
  • various illegal conduct, including:
    • the refusal to enter into transactions;
    • unfairly high prices and tie-in sales resulting from the abuse of a dominant market position;
    • collusive price fixing and market allocation under horizontal agreements; and
    • resale price maintenance under vertical agreements; and
  • increasingly severe punishments, with the NDRC possibly imposing record fines.

Further, some hidden collusive behaviour (eg, the concerted conduct in the estazolam case) and more complex behaviour (eg, 'pay for delay') have also come under strict scrutiny.

In order to prepare and respond to the recent pharmaceutical antitrust investigations, pharmaceutical and medical device companies should strengthen their antitrust compliance, particularly by:

  • conducting internal antitrust reviews and engaging antitrust professionals to assist in carrying out internal audits and evaluating potential antitrust risks;
  • providing updated antitrust training to senior managers and employees (particularly those in sales and marketing departments) to strengthen their awareness of antitrust compliance;
  • reviewing business policies, marketing materials and other internal strategic documents from an antitrust compliance perspective;
  • paying close attention to the concerted conduct in the estazolam case and treating any information exchange with competitors with caution. Companies should avoid discussions with competitors concerning the exchange of sensitive information – including information regarding prices, production and capacity – even during meetings organised by industry associations. When it comes to such sensitive topics, participants should raise objections against the proposal clearly and demand, if necessary, that their objections and contrary views be recorded in the meeting's minutes. Any ambiguous attitude could result in an unfavourable outcome for the company, such as that experienced by Changzhou Siyao; and
  • seeking professional advice to rectify any suspected violation as soon as possible. After a careful assessment of business benefits and legal risks, the company should prepare a voluntary report for the enforcement authority, after which it will ideally become eligible for leniency under the leniency programme.

For further information on this topic please contact Michael Gu at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected]). The AnJie Law Firm website can be accessed at


(1) The original Chinese notice issued by the SAIC is available at:

(2) The original Chinese notice issued by the NDRC is available at:

(3) The original Chinese notice issued by the SAIC is available at:

(4) The original Chinese notice issued by the NDRC is available at: