SAMR intensifies antitrust enforcement to regulate growing digital economy

Introduction
Forging digital economy
Second draft amendment
Anti-Monopoly Guidelines for Platform Economy Industries
SAMR expansion

Introduction

Technological innovation in China has allowed the country's digital economy to become the second largest in the world. Prior to the State Administration for Market Regulation's (SAMR's) ramping up of antitrust measures for the digital economy, the regulatory context was characterised by plans to maximise innovation and to overlook variable interest entities (VIE), which numerous Chinese companies have used to avoid foreign ownership restrictions.

The SAMR has recently emphasised the importance of implementing a competition policy to support this rapid development. This article looks at the SAMR's increased activity as regards antitrust enforcement in the digital economy and the key legislation that is driving this movement.

Forging digital economy

Since 2020, the SAMR has been more severe with its enforcement actions against anticompetitive regimes. This has included high fines for several large companies:

• Alibaba Group Holding – 18 billion yuan ($2.8 billion);
• Meituan – 3.4 billion yuan ($527.4 million); and
• Sherpa – 1.2 million yuan ($180,000).

The SAMR is also closely watching the platform economy, which has led to a rise in gun-jumping penalties. From January 2021 to October 2021, the regulatory authority investigated and issued a total of 43 penalties for the illicit implementation of business concentrations in the internet industry. One such penalty was given to Tencent Holdings, which was fined 500,000 yuan ($77,144) after the company failed to report its acquisition of China Music Corporation (CMC) to the SAMR.

In 2021, the SAMR outlined its new regime in the Anti-Monopoly Guidelines for Platform Economy Industries⁽¹⁾ (the Guidelines). Following the SAMR's draft of amendments (the first draft) issued early last year, the Standing Committee of the National People's Congress released the second draft of amendment (the second draft) to the Anti-Monopoly Law (AML) to solicit public comments by the end of October 2021.

Second draft amendment

The second draft proposes significant changes to the current AML, such as:

• priority on the digital market as general provisions;
• rules to bridge the technological asymmetry between platforms and other operators; and
• criteria to prevent the anticompetitive use of certain technologies as a separate form of abusive conduct.

In addition, the draft amendment proposes increased penalties for monopoly agreements, including fines:

• ranging from 1% to 10% of the sales amount of the preceding year if a business operator has implemented a monopoly agreement;
• up to 5 million yuan ($785,000) if the business in question has no sales amount from the previous year;
• up to 3 million yuan ($471,000) if a monopoly agreement has been entered into but has not been implemented; and
• up to 1 million yuan ($157,000) if legal representatives and other directly accountable personnel of the business were personally accountable for the conclusion of a monopoly.

More importantly, this draft adds a new clause, allowing SAMR to multiply the above fine by 2 to 5 times if the violation is particularly serious or it causes severe adverse effects or serious consequences.

Anti-Monopoly Guidelines for Platform Economy Industries

Exclusive dealing
The Guidelines define "exclusive dealing" as anticompetitive conduct and practice whereby vendors that use the platform economy are forced into entering exclusive sales contracts with the platform operator or other conduct demanding exclusivity from the vendors.

In the SAMR's investigation into Meituan, the company was found to have pressured vendors to "choose one from two" (ie, an exclusive dealing), which included a cooperation deposit that restricted merchants from going to other platforms; Meituan collected deposits totalling 1.2 billion yuan ($188 million).

The SAMR's penalty decision ordered Meituan to:

• cease its anticompetitive conduct, as operators on the platform could not be restricted from working with other platforms;
• refund the full amount of cooperation deposits;
• report on its compliance with the decision to SAMR; and
• pay a fine of 3.4 billion yuan ($527.4 million), based on 3% of its domestic turnover for 2020 (114.7 billion yuan ($18 billion)).

Hub-and-spoke agreements
The Guidelines also specify hub-and-spoke agreements for the first time. A "hub-and-spoke agreement" is one where horizontal competitors conspire, with the aid of a vertical partner (eg, a major supplier or a large contractor), to coordinate a monopoly. To determine whether such agreements are monopoly agreements under the AML, the SAMR must decide if the competitors in question have the means to reach and implement a monopoly agreement through:

• technical means, via platform rules; or
• the use of data and algorithms, to eliminate or restrict competition in the relevant market.

Merger review
For concentrations that do not reach the turnover thresholds but might exclude or restrict competition, the Guidelines state that antitrust enforcers will open an investigation. Further, the Guidelines clarify the concentration filing obligations of transactions connected with VIE structures.

SAMR expansion

In an effort to implement the provisions of the draft amendment and the Guidelines, the SAMR is seeking to expand its workforce in the State Anti-Monopoly Bureau. On 14 October 2021, registration for the 2022 national civil service examination was officially launched. This time, SAMR plans to recruit 33 civil servants, 18 of which will be sent to the bureau, accounting for more than half its quota.

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

Endnotes

(1) Further information is available here.