A recent flurry of new competition law rules may herald a year of increased enforcement of China's Anti-Monopoly Law (AML). The five rules published so far this year are:

  • Provisions on Anti-Price Monopoly, and its procedural rules (NDRC Provisions)
  • Provisions on Prohibition of Monopoly Agreements, Provisions on Prohibition of Abuse of Dominant Market Position, and Provisions on Abuse of Administrative Power to Exclude or Restrict Competition (SAIC Provisions).

These new rules will each take into effect on 1 February 2011.

In China, the National Development and Reform Commission (NDRC) is the regulator for price-related monopolistic conduct. The State Administration for Industry and Commerce (SAIC) is the regulator for all other behavioural matters, including non-price-related monopolistic agreements and abuse of dominant market position.

The new rules provide further guidance on conduct prohibited under the AML. They also demonstrate possible competition and a lack of coordination between the NDRC and the SAIC.

Highlights of the new rules

Under the NDRC Provisions:

  • The coincidence of price-related behaviour and communications between the undertakings will be examined to determine whether concerted action has taken place. Market structure and market change will also be taken into consideration. Under the AML, concerted action between the undertakings is one of the means through which a monopolistic agreement can be reached.
  • Various types of price monopolistic agreement are prohibited, including fixing or changing the prices of products/services, fixing or changing price variance, and agreeing a price calculation formula. The NDRC also has discretion to determine other types of price monopolistic agreement.
  • Trade associations are specifically prohibited from formulating rules, decisions or issuing notices that exclude or restrict price-related competition. They are also prohibited from organizing undertakings to enter into price monopolistic agreements or from taking related actions.
  • To the extent they are price related, various abuses of dominant market position specified under the AML are elaborated. For example, to determine whether an undertaking in dominant market position has sold or purchased products/services at an ''unfairly high price'' or ''unfairly low price'', the NDRC will consider, among other things, the variance from prices of similar products/services sold by other undertakings.
  • Factors are specified for determining whether an enterprise has a "good reason" for engaging in what would otherwise be an abuse of dominant market position. These factors differ depending on the particular abuse.
  • The first whistle-blower who reports a price-related monopolistic agreement and provides important evidence can be exempted from punishment. The second undertaking reporting the violation and providing important evidence can be subject to mitigated punishment of no more than 50% of the statutory sanction. Undertakings subsequently reporting the violation and providing important evidence can be subject to mitigated punishment of no less than 50% of the statutory sanction.
  • The NDRC may delegate its investigative power to provincial-level authorities, which may in turn further delegate municipal-level authorities. Interestingly, these delegations can reach one level lower than the corresponding delegation of the SAIC.

Under the SAIC Provisions:

  • Monopolistic agreements can be either written or verbal.
  • In order to identify concerted action, the SAIC will examine factors in addition to those prescribed by the NDRC; in particular, the SAIC will also consider: whether the undertakings have exchanged information; whether they can provide a reasonable explanation; the competitive status of the market; and the situation of the industry.
  • Specific examples of each category of monopolistic agreement and abuse of dominance under the AML are provided. Similar to the NDRC rules, more specific guidelines are given regarding trade associations and prohibited conduct.
  • Authorisation granted, restrictions imposed or rules published by an administrative authority do not provide an excuse for undertakings to reach or execute monopolistic agreements or to abuse a dominant market position.
  • A detailed set of factors is specified for the purpose of determining whether an undertaking has a ''dominant market position''. These factors are not included in either the AML or the NDRC Provisions.
  • The SAIC will consider two general factors in determining whether an enterprise has a "good reason" for engaging in what would otherwise be an abuse of a dominant market position. These factors are: (i) whether the conduct in question is part of the normal business of an enterprise; and (ii) the effects of the conduct in question on the efficiency of the economy, social public interest and economic development. These factors differ from the more specific factors given by the NDRC Provisions.
  • A whistle-blower among undertakings that are parties to a monopolistic agreement, in addition to the requirements set out in the NDRC Provisions, must also fully cooperate with investigation in order to be exempted from punishment. Mitigation for subsequent undertakings is discretionary.

Looking forward

The issuance of these rules indicates the possibility of increased AML enforcement activity after the five rules become effective in February. With the delegation of authority to municipal-level NDRC branches and price bureaux, more resources should also be available for price-related anti-monopoly enforcement under the AML.

Businesses should avoid high-risk behaviour such as cartels and price-fixing, and should also be careful to avoid the appearance of engaging in such behaviour. Care should be taken when engaging in other potentially prohibited conduct unless with "good reasons". Businesses should also be cautious in dealings with trade associations, which have historically been willing to facilitate anti-competitive behaviour among their members. The authorities' lack of tolerance for the anti-competitive behaviour of trade associations was confirmed again in December 2010 when the papermaking trade association of Fuyang City of Zhejiang Province was penalised for violations of both the AML and the Price Law. The association had attempted to organize undertakings to fix the price of paper.