On 30 August 2007, the National People’s Congress, China’s highest legislative body, passed the Anti- Monopoly Law (AML). The AML, which comes into effect on 1 August 2008, is an important milestone. It indicates that China, the fourthlargest economy in the world, has moved from being a planned economy to a market economy.
The AML covers the areas of monopoly agreements, abuse of dominant market position, market concentration by business carriers and abuse of administrative powers to restrict competition. The law also stipulates the process for investigating suspicious behaviour and the legal liability for anti-competitive actions. If a violator implements a monopoly agreement or abuses its dominant market position, it will face fines of up to 10 per cent of its annual sales and confiscation of all its illegal gains.
On 8 March 2007, the Ministry of Commerce issued the Guideline on Filing of Anti-Monopoly Notification Regarding the Takeover of Domestic Enterprise by Foreign Investor. The Guideline, along with the Provisions on Takeover of Domestic Enterprise by Foreign Investor that became effective 8 September 2006, sets forth procedures relating to the Chinese government’s review of the effects of both international and domestic mergers and acquisitions. In other words, the Provisions affect not only merger and acquisition activities within China, but also those outside China involving a Chinese entity. Under the Guideline, the Ministry of Commerce has appointed the Anti-Monopoly Review Office to handle all competition-related matters.
The AML defines two types of monopoly agreements. The first is a monopoly agreement between competing business carriers—a horizontal monopoly agreement. The second is a monopoly agreement between the undertaking and certain transaction parties—a vertical monopoly agreement. Both horizontal and vertical monopoly agreements are deemed illegal and invalid upon investigation and recognition by the Anti-Monopoly Enforcement Agency. Generally, if an agreement meets the criteria of a horizontal monopoly agreement, it is considered invalid. This is due to its obviously illegal aim of eliminating or restricting the market competition. However, recognition of a vertical monopoly agreement will be reviewed and made on a case-by-case basis.
Compared to previous drafts of the AML, the version of the AML that was passed makes industry associations that organise and encourage anticompetitive behaviour by their members liable for those members’ actions. Any industry association that engages in monopolistic conduct is liable for a fine of up to RMB500,000 and deregistration as a legal association. The background to this regulation is that many industry associations have led or organised several price-fixing cartels for various types of commodities. This had a serious impact on the market.
The AML establishes government authorities to govern monopolistic conduct. These authorities include the Anti-Monopoly Committee and the Anti-Monopoly Enforcement Agency. The Committee is a coordination and research organisation that drafts the national policy and framework of competition-related matters and resolves conflict among various agencies. The Anti-Monopoly Enforcement Agency is the main government authority in charge of daily antimonopoly affairs.
The provisions in the AML are still very general and not very practical. Given that there are several months until the AML goes into effect, we can expect more specific anti-monopoly rules and regulations to be announced by Chinese authorities during this period.