Recognizing concern that the Chinese government intervenes excessively into markets and private economic activities, the China State Council recently released opinions directing the implementation of a fair competition review system (“FCRS”), which is intended to moderate administrative authorities’ issuance of regulations and minimize the government’s interference in China’s economy. Although the CRS has been hailed as “a key step to establish the fundamental status of competition policies,” its success will depend on how it is implemented.
On June 1, 2016, the Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-Oriented Systems (“Opinions”) were promulgated and became effective. The Opinions note that enforcement of current laws sometimes entails “local protectionism, regional blockade, industry barriers, business monopoly, granting preferential policies in violation of the law or illegally prejudicing the interests of market players, and other phenomena contrary to the efforts of building a unified national market and promoting fair competition.” These so-called “administrative monopolies,” which often are at issue in cases investigated under the Anti-Monopoly Law (“AML”), are at cross purposes to the AML. In an effort to reduce or eliminate obstacles to economic development, the Opinions call for limiting the government authorities’ administrative powers, establishing the FCRS, preventing new policies and measures that exclude competition, and gradually revising and ultimately abolishing existing provisions that impede fair competition.
The Opinions’ primary principles or features can be summarized as follows:
- Importance and urgency. The Opinions explain the importance and urgency of establishing the FCRS: It will serve to (i) promote economic system reforms in an in-depth manner, for which excessive and inappropriate government intervention in the market should be prevented; (ii) ensure promotion of the rule of law, which calls on the government to fully and correctly perform its duties and functions pursuant to the law; (iii) achieve innovation-driven development; that is, help create a market environment of fair competition that encourages the public to start businesses and innovate; and (iv) foster creativity of market players of all types and develop new economic development impetuses.
- General requirements and fundamental principles. The Opinions specify the general requirements and fundamental principles for establishing the FCRS. These include properly defining the government’s relationship to markets and minimizing the government intervention; breaking up regional blockades and industry monopolies; streamlining and ultimately eliminating policies that hinder fair competition; and combining self-review with external supervision, including public oversight and law enforcement supervision.
- Scope of review, approach, standards and exceptions. The Opinions contain directives regarding the scope of review, basic approach, and standards and exceptions for the FCRS. The matters to be reviewed include a broad range of policies formulated by administrative authorities in relation to the economic activities of market players, including market entry, industrial development, attracting investment, tendering and bidding, government procurement, business codes of conduct, and qualification standards. The Opinions contemplate self-review by the policy-making authorities, which should consider comments of interested parties or solicit public comments. Detailed review standards are provided for the following four aspects of government regulation: (a) market entry and exit; (b) free movement of goods and production factors; (c) production and operating costs; and (d) activities of production and business operations. Relevant rules of the Anti-Monopoly Law are incorporated into the standards, especially those in connection with (d). As an exception, the FCRS will not prevent the issuance of policies in connection with state safety or public interests or other situations specified by law.
- Working mechanism. Fair competition review will start in July 2016. The four authorities, i.e., the National Development and Reform Commission (“NDRC”), the Legislative Affairs Office of the State Council (“LAO”), the Ministry of Commerce (“MOFCOM”) and the State Administration for Industry and Commerce (“SAIC”) (“Four Authorities”), will provide guidance on the fair competition review work. (NDRC, MOFCOM and SAIC are also the authorities that enforce the Anti-Monopoly Law, and so have broad experience in protecting fair competition.) Each policy-making authority is requested to gradually clean up existing provisions and practices that hinder fair competition. The Four Authorities are to draft implementing rules for the FCRS.
- Measures to ensure implementation. The Opinions outline implementation measures, including: The Anti-Monopoly Committee of the State Council will lead the improvement of competition policies; the mechanism requiring the government to honor its commitments shall be improved; law enforcement supervision shall be strengthened; and strong action should be taken against violations of the Opinions.
Although the issuance of the Opinions is a welcome development, many concerns about their implementation remain. For instance, what implementing rules will the Four Authorities institute? How can relatively inexperienced and traditionally bureaucratic policy-making authorities conduct self-review and provide an objective evaluation of the self-review results? How will the Four Authorities coordinate with each other and provide effective guidance when they face such a broad a range of policy-making authority? How can the public be involved effectively in the supervision work, including whether the exceptions to the FCRS are being abused? And what actions/punishment measures will attach to violations of the Opinions? Nonetheless, there is no doubt that the Chinese government has taken an important step forward, and questions about how far and how fast it will go will be answered in due course.