China’s National Development and Reform Commission (the “NDRC”) has fined 12 Japanese businesses a total of approximately CNY 1.23bn (approximately US$201m) for price fixing and anti-competitive conduct in the markets for the manufacture and supply of car parts and automotive bearings. The fines are significant as they represent record sanctions imposed by the Chinese competition authorities since the introduction of China’s Anti-Monopoly Law (the “AML”) in 2008.
It is clear that the automotive sector has become a key target for the Chinese competition authorities and the conclusion of the NDRC’s investigations are the first sanctions imposed in the automotive sector with many more expected to follow. These investigations follow China’s Ministry of Commerce announcing its intention to investigate 80 industries and shows that international businesses operating in the Chinese market need, more than ever, to be prepared for the risk of unannounced inspections by China’s growing competition authorities.
The companies involved have now proposed the following corrective measures:
- to carry out immediate reforms relating to sales policies and sales activity in accordance with Chinese law;
- to provide training on anti-trust legislation to all company employees to ensure that all employees comply with the requirements of Chinese law; and
- to take practical action to eliminate the consequences of past violations, proactively maintain order in relation to competition and to benefit consumers.
The NDRC’s investigation into car parts found that eight car parts manufacturers operated an illegal cartel and breached the AML by exchanging information on price and customer quotations at a number of bilateral and multilateral meetings over a ten year period between 2000 and 2010.
Hitachi, Denso, Aisan Industry, Mitsubishi Electric, Mitsuba, Yazaki, Furukawa and Sumitomo were found to have collaborated on price quotations for the supply of 13 separate car parts into the Chinese market, including on engines and wire harnesses, affecting more than 20 different car models including those manufactured by Honda, Toyota and Ford.
Following its investigation, the NDRC imposed total fines on the manufacturers amounting to more than CNY 831.96m (approximately US$135m / £82m). The fines levied against the eight manufacturers were as follows:
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Hitachi received full immunity from a fine due to it being the first to report the anti-competitive conduct to the NDRC and for cooperating with the NRDC’s investigation throughout.
The NDRC has also concluded its investigation into companies involved in the supply of automotive bearings into the Chinese market. Nachi, NSK, NTN and JTEKT were found to have exchanged information concerning pricing strategies, including future price rises to customers, at a series of meetings between 2000 and 2011.
As a result of the investigation, the NDRC has imposed total fines of CNY 403.44m (approximately US$65.7m) on the bearings manufacturers. The fines awarded by the NDRC were as follows:
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As was the case with the car part manufacturer cartel, one company received full immunity from the fines imposed by the NDRC. Nachi benefited from the Chinese immunity regime after being the first company to have reported the price fixing agreements and for cooperating throughout with the NDRC’s investigation.
China has again been criticised for punishing foreign firms so heavily and again accused of engaging protectionist considerations in its judgment. However, NDRC spokesman Li Pumin said at a briefing in Beijing that the government isn’t targeting foreigners, and reiterated the NDRC’s past statements that China will punish any violators of its anti-monopoly law regardless of nationality.
The sanctions imposed by the NDRC replicate activity undertaken by the European Commission which concluded similar investigations this year. The Commission found that JTEKT, NTN and NSK had co-ordinated pricing strategies across all European markets, and that Yazaki, Furukawa and Sumitomo were involved in five separate cartels relating to the supply of wire harnesses.
The fines imposed by the NDRC are much lower than those imposed by the European regulator, however, with fines representing up to 8% of turnover in some cases, they are close to the maximum amount that the NDRC is able to impose (under the AML, the NDRC is allowed to impose fines of up to 10% of a company’s turnover in the last financial year).
The size of the fines imposed in this case represents the serious nature of the behaviour and the fact that the cartels had been in existence for over 10 years. The fact that a number of cartelists benefited from full immunity and avoided any fines indicates the extent to which the Chinese competition authorities are imposing an effective and no nonsense competition enforcement regime with which it aims to tackle anti-competitive conduct and protect consumer interests.
The companies fined in this case have taken proactive steps to correct their behaviour, implementing new pricing strategies and also providing competition law training for their employees. Companies operating in China, particularly those in the markets highlighted by the competition authorities as under scrutiny, should ensure that their employees are aware of the risks of infringing competition law and that they have an effective competition law program, compliance policy and dawn raid network in place.