Earlier this year  the PRC's National Development and Reform Commission (NDRC) fined six LCD panel suppliers a total of RMB353 million for price fixing that took place between 2001 and 2006.

The fines were imposed under domestic pricing laws in force between 2001 and 2006 and exceeded the suppliers' illegal gain from the activities.  A new, related regime under China’s Anti-Monopoly Law which came into effect on 1 August 2008 empowers the NDRC to impose more severe penalties for similar behaviours committed today.

The decision illustrates China’s shift towards a tougher stance on anti-competitive behaviour by foreign companies in China – highlighting the need to understand and comply with competition law when operating in China.

The Anti-Monopoly Law and the Administrative Penalty Law would, however, still allow the NDRC to be lenient where businesses self-reported their behaviour and co-operated with investigations.

Facts

The NDRC found that between 2001 and 2006, six LCD panel suppliers based in Taiwan, China and South Korea held 53 meetings in Taiwan where they exchanged market information and discussed pricing for LCD panels sold in China. The NDRC also noted that the six LCD panel suppliers sold a total of 514,620,000 LCD panels in the relevant period which accounted for 80% of the costs for the TVs in which they were used, amounting to an illegal gain of RMB208 million.

The RMB353 million penalty imposed on the suppliers included:

  • a refund of RMB172 million to domestic enterprises
  •  a confiscation of RMB36 million
  •  a fine of RMB144 million 

The six LCD panel suppliers also undertook to:

  • strictly comply with Chinese law
  •  uphold the order of market competition
  • protect the lawful interests of other operators and consumers 
  •  use their best efforts to supply goods fairly in China
  • extend LCD warranties in China from 18 to 36 months

Pricing laws

The NRDC found that the suppliers had colluded "with others in manipulating market prices and harming the lawful rights and interests of other business operators and consumers” thereby breaching article 14(1) of the Pricing Law.

Under Articles 40 and 41 of the Pricing Law, the following penalties may be imposed for the violation:

  • an order to rectify the situation
  • confiscation of illegal gain
  • a fine up to five times the illegal gain
  • an order to cease business
  • de-registration of the company
  • a warning

Anti-monopoly laws

If the same facts arose today, the activities would be caught under Article 13 of the Anti-Monopoly Law. Article 13 prohibits competing businesses from entering into monopoly agreements including those for fixing or changing prices. However, in some cases agreements may be exempt under Article 15, for example, where the purpose of such an agreement is to improve technologies and research and develop new products.

The penalties for breaching the Anti-Monopoly Law would, generally, be more severe.

Where the agreement has been implemented, under Article 46 of the Anti-Monopoly Law the NDRC can:

  • make an order to stop the violation
  • confiscate the illegal gain 
  •  impose a fine between 1% and 10% of the turnover in the preceding year

Where the agreement has not been implemented, the NDRC may still impose fines which are no more than RMB500,000.

Leniency

The NDRC has highlighted that the fines imposed in this case were reduced given the co-operation of various parties with their investigation. The NDRC will also have discretion to take a similar approach under the Anti-Monopoly Law.

The leniency principle which will allow the NRDC to do so is provided for in Article 27 of Administrative Penalty Law and Article 46 of the Anti-Monopoly Law.

This may encourage those responsible for monopoly behaviours in the past to come forward voluntarily rather than waiting to be discovered. However, some commentators still see the discretionary and uncertain nature of the leniency principle as an issue.