On August 12, 2009, China’s National Development and Reform Commission (NDRC) published a draft version of the Regulations on Anti-Price-Monopoly to solicit opinions from the public. The draft regulations are intended to implement the Chinese Anti-Monopoly Law (AML), which took effect on August 1, 2008. The deadline for submission of comments on the draft rules is September 6, 2009.

The NDRC is one of three anti-monopoly bodies in China and is responsible for enforcement of the AML in price-related cases. The other two enforcement bodies are the State Administration for Industry and Commerce (SAIC), which has responsibility for enforcement of the AML’s prohibition of monopoly agreements and abuse of dominant market positions unrelated to price, and the Ministry of Commerce (MOFCOM), which has enforcement responsibility for the AML’s merger control provisions.

Enforcement Scope

The regulations are applicable to price monopolistic acts with the following characteristics:

  • Conducted by any business operator, any administrative agency or organization authorized to manage public affairs that misuses administrative power to eliminate and restrict competition in relation to price
  • Located within China
  • Located outside China but eliminating or restricting competition in China’s domestic market

Price monopolistic acts include price monopolistic agreements and acts that abuse dominant market position.

Price Monopolistic Agreements

A price monopolistic agreement is defined as an agreement, a decision or other concerted acts reached in oral or written form by two or more business operators to eliminate or restrict competition in relation to price. The following factors may be taken into account when defining a concerted act:

  • Whether there is consistency among business operators’ pricing acts; market structure and market changes shall also be taken into account to consider whether the consistency of pricing acts has justifiable reasons
  • Whether there is action in concert among business operators

The following price monopolistic agreements among competing business operators are prohibited:

  • Fixing or changing various prices of commodities
  • Fixing or changing price-change volume
  • Fixing or changing a commission or discount that has an influence on prices
  • Applying a uniform price as the basis for negotiating with a third party
  • Agreeing to apply a standard formula as a basis to calculate prices
  • Agreeing that a price shall not be changed without other business operators’ consent
  • Fixing or changing a commodity price by limiting production and sales quantities or dividing sales and procurement markets
  • Any other price monopolistic agreements as identified by the competent authority of prices under the State Council

A business operator is prohibited from entering into the following price monopolistic agreements with its transaction parties:

  • Fixing the price of a commodity to be re-sold to a third party
  • Limiting the minimum price of a commodity to be re-sold to a third party
  • Entering into any other price monopolistic agreements as identified by the competent authority of prices under the State Council

Further, trade associations are prohibited from carrying out the following activities:

  • Formulating trade association rules, decisions, notices, etc., to fix or change prices
  • Assembling the business operators in the trade for discussing and forming agreements, resolutions, summaries or memoranda regarding fixing or changing prices
  • Aiding business operators in reaching price monopolistic agreements
  • Entering into any other price monopolistic agreements, as identified by the competent authority of prices under the State Council, that are prohibited according to law

However, the above-mentioned price monopoly agreements and other prohibited activities may be exempted under Article 15 of the AML if any of the seven circumstances outlined in the article is found.

Price Monopolistic Acts That Abuse Dominant Market Position  

Under the regulations, “dominant market position” means a market position held by business operators that have the ability to control the prices or quantities of commodities or other trading conditions in the relevant market, or to block or affect the entry of other business operators into the relevant market. “Other trading conditions” means factors, other than commodity price and quantity, that can substantially affect market transactions, including commodity grade, terms of payment, method of delivery, after-sale services, etc. “To block or affect the entry of other business operators into the relevant market” means excluding or delaying the entry of other business operators into the relevant market within a reasonable time period, or significantly increasing their cost of entry if they can enter the relevant market, so that they cannot effectively compete with existing enterprises, etc.

To identify whether a business operator has a dominant market position, the following factors should be taken into account:

  • The market share of such business operator in the relevant market, and the competition conditions of the relevant market
  • The ability of the business operator to control the sales market or the raw material procurement market
  • The financial strength and technical conditions of the business operator
  • The market share of such business operator in the relevant market, and the competition conditions of the relevant market
  • The difficulty for other business operators to enter the relevant market
  • Other factors relating to the identification of the dominant market position of said business operator

The presumption of dominant market position of a business operator should be made based on the definition of relevant market in accordance with Article 19 of the AML. The presumption is rebuttable by any of the following evidence:

  • It has a market share of less than one-tenth.
  • It is relatively easy for other business operators to enter the relevant market.
  • The competition in the relevant market is relatively sufficient.
  • The relevant business operator has no ability to control commodity price and quantity or other trading conditions in the relevant market, or to obstruct or affect the entry of other business operators into the relevant market.

If two or more business operators are presumed to have a dominant market position, the relevant presumption can only be rebutted if the following are proved:

  • There is substantive competition among the operators.
  • A single competitor has no outstanding market position as compared to other business operators.

A business operator with a dominant market position is prohibited from engaging in the following price monopolistic acts:

  • Selling a commodity at an unfairly high price or purchasing a commodity at an unfairly low price, provided that the relevant transacting parties are unable to acquire the same kind of commodities or substitutes from other business operators at a reasonable price
  • Selling a commodity at a price lower than its cost without a justifiable reason
  • Refusing in disguised form to enter into a transaction with transacting parties by adopting an excessively high price or an excessively low price without a justifiable reason
  • Applying discriminatory treatment regarding a transaction price to transacting parties with same status without a justifiable reason
  • Conducting any other price monopolistic acts, as identified by the competent authority of prices under the State Council, that abuse dominant market position

Misuse of Administrative Power

Furthermore, no administrative agency or organization, as authorized by laws and regulations to perform the function of managing public affairs, may misuse its administrative power to conduct the following activities:

  • Creating discriminatory charging items on the commodities from other places
  • Applying discriminatory charging rates on the commodities from other places
  • Specifying discriminatory prices for the commodities from other places
  • Conducting any other price-fixing or fee-charging activities, as identified by the competent authority of prices under the State Council, which obstruct the free circulation of commodities among regions
  • Forcing a business operator to conduct various kinds of price monopolistic acts as prohibited by these regulations
  • Formulating any regulation containing content excluding or restricting price competition

It is also to be noted that these regulations are applicable to any misuse by a business operator of its intellectual property rights to eliminate or restrict competition. However, they are not applicable to any joint or concerted acts conducted by agricultural producers and rural economic organizations in the production, processing, sales, transportation and storage of farm products, and other business activities.

Click here for an unofficial translation of the regulations.