On December 29, 2010, China’s National Development and Reform Commission (NDRC) issued the Anti-Price-Monopoly Regulation (Regulation) and the Regulation on Administrative Enforcement of the Anti-Price Monopoly Regulation (Enforcement Regulation); both of which took effect on February 1, 2011. While the Regulation contains substantive rules focusing on monopolistic pricing behaviors, including both monopoly agreements and abuse of dominant market position, the Enforcement Regulation is a procedural regulation providing concrete enforcement tools and implementation guidelines for the Regulation. The two regulations clarified certain key concepts introduced by the 2007 Anti-Monopoly Law (AML).
The Regulation invalidates two types of monopolistic pricing behavior: (1) business operators reaching a price monopoly agreement; and (2) business operators with dominant market positions using pricing means to eliminate or restrict competition.
Price Monopoly Agreements
Article 13 of the AML prohibits competing business operators from entering into monopoly agreements and lists six specific types of conduct that may be regarded as reaching a monopoly agreement. One such type of conduct is related to price fixing. Article 7 of the Regulation lists the following acts as constituting a price monopoly agreement:
- Fix (or change) the price level of commodities or services (collectively, Commodities);
- Fix (or change) the range for price changes;
- Fix (or change) the handling charges, discounts, or other charges that affect prices;
- Fix price for transactions with third parties;
- Agree on a standard formula for calculating prices;
- Prohibit price change without the consent of the other business operators that are parties to the agreement;
- Fix (or change) prices in a disguised fashion by other means; and
- Other types of price monopoly agreements as determined by the State Council’s department in charge of pricing.
Abuse of Dominant Market Position
Article 17 of the AML prohibits business operators from abusing their dominant market positions and lists seven types of conduct that may be deemed as abuse of a dominant position, such as selling Commodities at an unfairly high price or purchasing Commodities at an unfairly low price; selling Commodities at a below-cost price; refusing to deal with trading counterparties without justifiable causes; and restricting transaction counterparties to dealing only with the business operator itself or with persons designated by it without justifiable causes.
The Regulation further defines the terms of “unfairly high price”, “unfairly low price”, and “without justifiable causes” under Article 17 of AML. Article 11 of the Regulation provides that, in determining if prices are unfairly high or low, the enforcement agency must consider: (i) whether the sales price or purchase price is markedly higher or lower than the price at which other business operators sell or purchase the same type of Commodities; (ii) where costs are essentially stable, whether the sales price was raised or the purchase price lowered beyond the normal range; (iii) whether the level of the price increase for the sale of Commodities is markedly higher than the cost increase range, or whether the range of the price reduction for the purchase of Commodities is markedly greater than the transaction counterparty’s cost reduction range; and (iv) other related factors.
Article 12 of the Regulation further defines the term “justifiable causes” under Article 17(2) of the AML, which prohibits dominant business operators from selling Commodities at below-cost prices without justifiable causes. According to Article 12 of the Regulation, justifiable causes under Article 17(2) of the AML include: (i) a price reduction to dispose of fresh or live goods, seasonal goods, goods whose shelf life is about to expire, or a backlog of goods; (ii) a price reduction to sell Commodities in order to discharge debts, change production, or close down the business; (iii) promotional sale of a new product; or (iv) other legitimate reasons.
The AML, in Article 17(3), prohibits dominant business operators from refusing to deal or transact with other market participants without justifiable causes. Article 13 of the Regulation defines “justifiable causes” as including: (i) the transaction counterparty having a serious bad credit record, or its business position is deteriorating, which could expose the transaction to a great risk; (ii) the transaction counterparty’s being able to purchase the same type of Commodities or substitute Commodities from another business operator at a reasonable price or sell its Commodities to another business operator at a reasonable price; or (iii) other legitimate reasons.
Article 14 of the Regulation defines the term “justifiable causes” under Article 17(4) of the AML, which prohibits dominant business operators from restricting transaction counterparties to deal only with itself or persons designated by it without justifiable causes. According to Article 14 of the Regulation, justifiable causes here include: (i) ensuring product quality and safety; (ii) protecting its brand image or enhancing its level of service; (iii) markedly reducing costs or increasing efficiency while enabling consumers to share the benefits; or (iv) other legitimate reasons.
The Enforcement Regulation
Investigation Power Allowed to the Enforcement Agencies
The NDRC and its local counterparts are responsible for the enforcement of the anti-price monopoly rules in their respective jurisdictions, and may, take the following measures during the course of investigating alleged anti-price monopoly behaviors:
- enter into the premises of business operators;
- interrogate business operators, interested parties or other relevant entities and individuals (Investigated Persons), requiring them to explain the relevant situation;
- inspect and copy documents belonging to the Investigated Persons, such as accounting vouchers, agreements, accounting books, business correspondences, etc.
- seize and detain relevant evidence; and
- check bank accounts.
Relevant offices of the NDRC may reduce or exempt administrative fines when business operators proactively report price monopoly behavior and provide key evidence. The first self whistleblower will be exempted from administrative penalties. The second qualified self whistleblower may be granted a 50% reduction in the administrative penalties. Others self whistleblowers may receive leniency, but the reduction may not exceed 50% of the stipulated administrative penalties.