The Chinese Ministry of Commerce (“MOFCOM”) recently announced the intention of the Chinese competition authorities to step up the number of their investigations into possible anti-competitive and abusive market conduct.
Chinese competition law is enforced by a triumvirate of authorities: the National Development and Reform Commission (“NDRC”) is responsible for enforcing competition laws relating to price, including anti-competitive agreements and abuse of dominance; the State Administration for Industry and Commerce (“SAIC”) is responsible for enforcing laws not related to price; and the Ministry of Commerce (“MOFCOM”) enforces the merger control regime.
In the announcement, MOFCOM signalled that together the three authorities aim to investigate 80 separate industries regarding possible anti-competitive conduct, including those for cars, pharmaceuticals and alcoholic drinks.
This MOFCOM announcement comes at the same time that SAIC announced plans to conduct investigations into key industries over the next three years, focusing predominantly on online businesses, auto sales, furniture and construction, and utilities and is underpinned by a recent upsurge in the amount of enforcement activity undertaken by all three of the Chinese Authorities.
Whilst SAIC has only commenced 33 investigations since the inception of the Chinese Anti-Monopoly Law in 2008, it is clear enforcement activity in China is to become more common and these announcements should serve as a warning to businesses in China, particularly given the proposed scope and breadth of sectors that are likely to be affected.
Investigation into Eyewear Makers
A recent investigation by the NDRC found that a number of eyewear manufacturers had been involved in restricting resale prices. The investigation found that the manufacturers, including Johnson & Johnson, Carl Zeiss and Bausch & Lomb, had included provisions in sales contracts to influence the resale price and to influence promotional activity by resellers. The companies also punished resellers that did not adhere to suggested resale prices, by withholding deposits and commissions, levying “fines,” and withdrawing stopping.
Following its investigation, the NDRC ordered the manufacturers to pay a fine of more than RMB 19 million (approximately US$3 million) for breaching Anti-Monopoly Law. The largest fine was levied against Essilor, RMB 8.79 million (approximately US$1.4 million), which represented 2% of its previous year’s sales. Nikon was also fined 2% of its previous year’s sales, whilst Zeiss, Bausch & Lomb and Johnson & Johnson were only fined 1% because they had “actively co-operated with the investigation and modified their behaviour”.
The NDRC’s investigation was launched in August 2013 following whistleblower reports and Japanese manufacturer, Hoya Corporation, and the Chinese company, Shanghai Weicon Optics Co, who were also investigated, were exempt from punishment under the NDRC’s leniency policy because they had voluntarily reported monopolistic practices and rectified the issue.
Following the opening of the investigation, several of the manufacturers took steps to reduce their prices by between 10%-30% and these reductions in price were taken into account by the NDRC when deciding the appropriate level of fine.
Sale of World Cup football tickets
SAIC has suspended its investigation into Beijing Shengkai Sports Development (“Beijing Shengkai”) for suspected abuse of dominance in regard to the sale of tickets for the FIFA World Cup.
The investigation had looked into whether Beijing Shengkai abused its position as an exclusive agent by tying various ancillary services, such as hotels and transport, to the tickets it sold. As part of the investigation, SAIC conducted dawn raids to review various documents including sales contracts and e-mails. The investigation also extended to business partners.
Beijing Shengkai accepted that its conduct had restricted competition and proposed a number of commitments which, according to SAIC, removed any restriction on competition and consumer choice going forward. Included in these commitments was an agreement to publish its ticket policy through mass media, provide customers with refunds where they did not want to use any of the tyed products and remove the tyed products from future deals.
It is clear that China’s competition authorities have begun a new stage of enforcement proceedings, in order to head off economic and consumer concerns. The scope and breadth of the investigations that have been announced show that, despite a relatively slow start to enforcement activities since the inception of the Anti-Monopoly Law in 2008, the Chinese enforcement authorities are really starting to focus on companies that are involved in anti-competitive agreements or involved in abusive conduct.
Businesses operating in China across all sectors are encouraged to act quickly to protect their business interests. Recent investigations show the necessity of having an effective and fully functioning international dawn raid network, and a culture of competition compliance across all business areas and activities.