Antitrust enforcement in China is still in its formative years, but recent developments highlight that multinational investors must be keenly aware of the potential implications of their dealings in China under the Anti-Monopoly Law 2008 (AML).

In recent weeks, the Chinese authorities have been investigating foreign firms in various industries around the country for allegedly breaking the country’s antitrust laws, including conducting spot inspections of their premises and hard drives. The National Development and Reform Commission (NDRC), the most powerful of three agencies involved in enforcing antitrust laws in China, has been pursuing the automobile industry.

Chinese Competition Law

China’s AML borrows from foreign antitrust laws, in particular from Europe, but it also contains some bespoke features, including requirements that enforcement agencies take into account industrial policy considerations.

China has the three antitrust regulators:

  • the Ministry of Commerce (MOFCOM) is responsible for merger control;
  • the State Administration for Industry and Commerce (SAIC) is responsible for non-merger enforcement, in particular non-price-related conduct; and
  • the NDRC is responsible for price-related non-merger conduct.

The Chinese government has been vocal in complaining about high prices of foreign luxury cars for at least a year, and now the NDRC’s enforcement activities are beginning to come to light. Since the beginning of 2014, foreign car companies have been under scrutiny for possible “vertical” infractions of China’s 2008 Anti-Monopoly Law, by allegedly fixing the retail prices charged by their downstream dealers and service providers.

The Anti-Monopoly Law prohibits "monopoly agreements", which are agreements between competing businesses or trading partners containing certain restrictions on competition. "Vertical" monopoly agreements include agreements between a company and its trading partners to fix resale prices, or to restrict minimum resale prices to third parties.

Under the AML, companies can be fined as much as 10 % of their annual revenues for pricing violations – a potentially large amount for many multinational car companies in the world’s largest car market. For instance, China accounts for 15% of Daimler’s revenues and one-fifth of BMW’s.

Recent Developments

Recently, ten Japanese car-parts firms have received fines totalling 1.24 billion yuan ($200m), the largest antitrust penalty ever imposed in China, while the NDRC has also found Daimler, the German carmaker, guilty of using its market power to inflate the price of spare parts illegally. Investigators in Jiangsu province found that executives at Daimler’s Mercedes-Benz division had controlled prices of spare parts and repair and maintenance in downstream markets.

The NDRC has a long-standing mandate to control prices which explains why it often forces firms to slash prices—as it did in the Daimler case—as a remedy. Overall, the increased levels of investigation and enforcement in the sector appear to have already started to have an impact on pricing, with the media reporting that Daimler, Audi and Jaguar Land Rover have begun cutting prices pre-emptively.

One of the key features of the Chinese antitrust investigatory regime is the obligation to cooperate. During the investigation, undertakings are under a duty to cooperate and any conduct which impedes an investigation – such as providing false information, or refusing to provide, hiding, or destroying relevant information – can result in fines: for individuals or undertakings. Two senior executives from Volkswagen’s biggest joint venture in China have recently been placed under investigation for “seriously violating the law” by the Central Commission of Discipline Inspection for violations were discovered during a probe of First Auto Works (FAW), one of the country’s largest state-owned car companies. Volkswagen and FAW’s joint venture is one of the industry’s longest-running partnerships and operates factories in half a dozen Chinese cities.

Meanwhile, the European Chamber of Commerce in China has urged local authorities not to “prejudge the outcome of the investigations”. However, data from 2013 indicates that Chinese regulators have also targeted domestic firms, ranging from drinks manufacturers and gold retailers to salt producers.

Conclusion

China has quickly emerged as an important competition law jurisdiction both for domestic companies and for international businesses with activities in China. China’s antitrust regulators appear to be growing more confident and seem likely to issue more rulings that will impact foreign firms.