Far-reaching updates to Anti-Monopoly Law come into effect 1 August

Amendments include stricter penalties for antitrust violations; increased enforcement powers; revised thresholds for merger control; an express prohibition of hub & spoke arrangements; potential exemptions/defenses for certain vertical restraints including resale price maintenance, and continued scrutiny of the platform economy. On 24 June 2022, the Amendments to China's Anti-Monopoly Law (the "AML Amendments") were approved and released. Key updates include:

Tougher penalties for non-compliance:

  • personal liability - monetary penalties up to RMB 1 million for directly responsible leadership and employees;
  • significantly increased fines for gun-jumping (RMB 5 million for non-problematic transactions, or up to 10% of total group turnover for anti-competitive deals);
  • potential criminal liability of both companies and individuals if conduct constitutes a crime violating the Criminal Law (currently, bid rigging and obstruction of antitrust investigation); and
  • multiplied fine (2-5 times the original fine amount) for serious violations.

Broader enforcement powers:

  • the SAMR is vested with the power to call in suspected companies not yet under antitrust investigation and seek antitrust compliance/mitigating measures; and
  • People's Procuratorate authorized to initiate civil antitrust litigation on public interest grounds.

More robust merger control regime:

  • the SAMR allowed to pursue and review below-threshold transactions as long as they are evidentially anti-competitive; and
  • adoption of EU-style "stop-the-clock" mechanism.

More sophisticated enforcement in behavioural cases:

  • express prohibition of hub-and-spoke arrangements;
  • addition of potential safe harbours/defences for vertical restraints; and
  • focus on the use of data, algorithms, technologies, capital advantage, and platform rule setting in platform economy sector.

The AML Amendments signal an urgent need for businesses in China to update their antitrust compliance programs. For more information, please refer to our full client alert.

China contemplating updates to merger filing thresholds

The antitrust enforcement authority is proposing to raise the existing turnover-based threshold and add a new hybrid threshold based on turnover and market value.

Immediately following the AML Amendments, the SAMR issued for public comments draft changes to key supporting rules and regulations on cartels and vertical restraints, abuse of dominance, abuse of IP rights, merger control procedures, merger control thresholds, and administrative monopoly respectively on 27 June 2022.

The proposed changes tntend to materially raise the current existing turnover thresholds:

  1. a China-wide turnover for each of at least two of the parties to the concentration over RMB 800 million (formerly RMB 400 million); AND
  2. a combined worldwide turnover of all the parties to the concentration over RMB 12 billion (formerly RMB 10 billion),

or combined Chinese turnover of all the parties to the concentration over RMB 4 billion (formerly RMB 2 billion). In addition, the proposed changes add a new hybrid threshold presumably aimed at competitively significant ("killer") acquisitions:

  1. The China-wide turnover of one party to the concentration over RMB 100 billion; and
  2. The other party(s) to the concentration has valuation/market value over RMB 800 million, and China-wide turnover over 1/3 of its total turnover.

The above proposed changes are still under consultation and subject to public comments by 27 July 2022. It remains to be seen whether there are further changes and when the revised filing thresholds will come into effect.

China strengthens enforcement against price gouging

On 10 June 2022, the SAMR issued a set of detailed rules to add more clarity on how price gouging infringements would be determined under the Price Law ("PL"). In 2021, the SAMR proposed a steep increase in the penalties for PL violations, but this rule has not yet been finalised.

Price gouging concerns arise where a business increases the price so as to make more profits due to the shortage of goods caused by its hoarding or a climate of fear in the market arising from its fabricating or disseminating price increase information. Price gouging could also be established by spotting an extraordinarily high price for tie-in sales, unreasonably steep increase in shipping charges or other fees, or even higher price increase than the cost increase.

There is some convergence between PL and antitrust violations. However, unlike competition law which focuses on abusive pricing behaviour, a PL violation is not conditional upon a dominant market position. It means that businesses that are not dominant will still face PL risks. The SAMR can also more easily enforce against price violations under the PL, as it requires a lower burden of proof.

A platform operator has already been fined for its "choose one from two" exclusive arrangement in violation of the Anti-Unfair Competition Law, despite not being dominant (and it therefore could not be pursued under the AML). As such, a PL risk assessment is now also strongly recommended for pricing conduct in China, in addition to AML risk analysis.