On 14 November 2011, China's National Development and Reform Commission ("NDRC") announced that it had imposed a fine of approximately RMB 7 million (~USD 1.1 million) on two private pharmaceutical companies for colluding to raise the price of promethazine hydrochloride, the base ingredient for compound reserpine tablets, a hypertension medicine that treats high blood pressure. NDRC is the agency that is primarily responsible for investigating and prosecuting price-related anti-competitive behaviour under China's Anti-Monopoly Law (the "AML"). This is the highest fine NDRC has imposed for antitrust infringements since the AML entered into force in 2008.
According to NDRC, Weifang Shuntong Pharmaceutical Factory Co. ("Shuntong") and Weifang Huaxin Pharmaceuticals Trading Co. ("Huaxin"), both based in Shandong Province, signed an exclusive dealing agreement with the only two national providers of pro-methazine hydrochloride, which stipulated that these two providers must not sell pro-methazine hydrochloride to any third parties without their permission. NDRC reports that after controlling the supply of the raw material for compound reserpine tablets, Shuntong and Huaxin raised the price of pro-methazine hydrochloride more than six-fold from RMB 200 per kilogram to up to RMB 1,350 per kilogram. As a result, dozens of manufacturers of compound reserpine tablets have been forced to halt production or to use the raw materials they held in stock to maintain normal supplies. NDRC fined Shuntong RMB 6.5 million (~ USD 1 million) and Huaxin RMB 100,000 (~ USD16,000) respectively, and confiscated their illegal gains of RMB 429,600 (~ USD 68,000).
This case is another landmark case following NDRC's recent high-profile investigation of two Chinese state-owned telecom companies (see our previous alert here. Notably, the Price Supervision Department of the NDRC has recently been renamed the Price Supervision and Anti-Monopoly Bureau of the NDRC; it has expanded its enforcement team from one division to three divisions and added 20 staff members. The recent flurry of activity by NDRC does not appear coincidental, and it can be expected that further investigations will follow. It therefore appears more important than ever for Chinese companies, as well as multinational companies doing business in China, to ensure that antitrust compliance remains a high priority.