What European lawyers need to know about Chinese Antitrust Law

In this article we discuss the key points of China’s Anti-Monopoly law (AML) and compare them to EU competition rules, which readers in Europe may be very familiar with.

1. History in the Early Stage

Unlike the long history of Competition Law in Europe, with the first major decision under EU competition laws taken in 1964, China only published its long-awaited AML in 2008.

At the beginning of the 1980s, when China opened its domestic market to foreign investment in a few sectors, most industries of the Chinese economy were still controlled by the state, while the administrative authorities had significant discretionary power over the market and economic policy. For instance, the National Development and Reform Commission (NDRC) was a macroeconomic management agency under the State Council, which has broad administrative and planning control over the economy. Its powers included setting up and supervising the price of commodities and services in key sectors. Since then, China introduced economic reforms with ambitious market-oriented measures aiming at encouraging private business.

As a result of wide-reaching national reforms which privatized most state-owned businesses, there came a boom in market competition, along with the soaring economy and unhealthy inflation rates. The government was still controlling the macro-economy, but becoming aware that the priority was to further develop and strengthen privately-owned business before fully embracing and competing with foreign investment and entering the WTO. The concern was that foreign entities with advanced know-how and funding resources would easily obtain the dominant market position, but China also vowed to make more of an effort to liberalize foreign investment activities in China under its WTO commitments. In 1994, the National People’s Congress finally started the legislative process to draft China’s new AML. Never before in the Chinese legislative history, perhaps with the exception of comprehensive insolvency legislation for exactly the same reasons, had a drafting and consultation process taken so long, which illustrates just how difficult it is for the Chinese government to balance its domestic industrial policies with the conflicting goals of the AML.

Therefore, considering the above background, the Anti-Unfair Competition Law was first introduced in 1993, followed by the AML in 2008. The focus of enforcement under the AML at the beginning was on the foreign acquisitions of Chinese businesses as well as the business cartels organized by semi-administrative bodies such as industry associations or public institutions.

2. Diminishing Government Control

More recently, in 2016, the promulgation of the Opinions of the State Council on “Establishing a Fair Competition Review System During the Development of Market-oriented systems” introduced China’s Fair Competition Review System (FCRS). It bears a remarkable resemblance to the EU State aid control. The FCRS aims to further prevent government behavior that restricts competition, and to regulate the government’s behavior, preventing the introduction of policy measures that restrict competition, in order to gradually clean up and abolish the administrative policies and local practices that restrict fair competition and the development of a national unified market.

3. Provisions Structure

Making large amounts of reference to the models of EU and German competition law, China’s AML comprises four sections of rules over:

• monopolistic agreements;
• the abuse of dominant market position;
• merger rules to control large M&A activity;
• the abuse of administrative power.

Like the Block Exemptions Regulations in Europe, AML provides an exemption regime for both horizontal monopolies and vertical monopolies, whereby anti-competitive agreements with certain specific redeeming benefits are permissible.

Nonetheless, in other ways China’s AML Law seems inconsistent with international practice. Competition law regimes in the EU and other jurisdictions do not generally allow for the possibility of exemption where particularly serious anticompetitive horizontal conduct is concerned. Such serious anticompetitive horizontal conduct generally is deemed as a hardcore restraint and is excluded from the benefit of the exemption, irrespective of the parties’ market shares. Similarly, the exemption in the event of “crisis cartels” for the purpose of mitigating a serious decline in sales or overproduction in an economic downturn is not always permitted elsewhere.

4. Illegal Per Se or Rules of Reason

Chinese courts and administrative authorities have often held different positions on whether the AML follows the principle of illegal per se or rules of reason in this regard.

As far as the literal provisions of the AML are concerned, the section for monopolistic agreements and abuse of dominant market position are using the literal wording "prohibit" without any precondition. Any breach of the prohibition will then constitute a violation of law, without regard for the effect caused by the violation or exemption, hence such unconditional prohibitions can be treated to have the nature or character of "illegal per se".

However, with regard to articles for the abuse of dominant market position without justifiable cause, the literal wording "justifiable cause" is used, so that it can be argued in favour of the “illegal per see” position wherever such wording is not being used.

At least for the time being, the resale price maintenance will be more certainly defined as a hardcore restraint following the illegal per se doctrine. Business operators need to be cautious about imposing pricing requirements on their distributors and/or retailers to avoid administrative and civil litigation under the AML.

5. Enforcement Authority

A distinctive feature of the Chinese competition law regime is that its administration and enforcement are shared among different authorities.

The Antimonopoly Commission is primarily responsible for formulating competition policy and ensuring the overall coordination of enforcement among different authorities. The Antimonopoly Commission reports directly to the State Council.

Before the enforcement reform in 2018, the power to enforce the AML was shared among three institutions that report to the Antimonopoly Commission due to their historic roles and turf wars resulting from such roles, namely:

• As mentioned in first section, NDRC was set for macro-economy planning. The Price Supervision and Antimonopoly Bureau of the NDRC enforced the conduct rules and the prohibition on the abuse of administrative power in price related matters.
• The Antimonopoly and Unfair Competition Enforcement Bureau of the State Administration for Industry and Commerce (SAIC) enforced the conduct rules and the prohibition on the abuse of administrative power in relation to any other non-price related matters.
• The Antimonopoly Bureau of the Ministry of Commerce (MOFCOM) administered and enforced the merger control rules, as it already did under the previous merger control regime.

After 2018, the SAIC was re-structured as State Administration and Market Regulation (SAMR), which then took over all the enforcement power from the other two institutions.

6. Digital Platform Monopoly

In the era of the digital economy, platforms that can broker trade, gather and publish information and facilitate transactions have significantly increased efficiency as well as pro-competitive effects on the economy. However, significant market power is also raising respective concerns of data monopoly and exploitation, price abuse and exclusive trading etc.

The AML amendment and the Antitrust Guidelines for the Platform Economy (Platform Guidelines) share the concerns of the EU’s Digital Markets Act (DMA), in particular the concept of “gatekeepers”.

The Platform Guidelines define the notions of “platform” as a form of commercial organization that facilitates interaction between bilateral or multilateral undertakings which depend on one another, through internet information technology, and follow certain rules, jointly to create commercial value. DMA applies to so-called “gatekeepers” that provide one or more Core Platform Services (CPS). Both platform under Platform Guidelines and the Gatekeepers feature a number of characteristics e.g. extreme economies of scale, very strong network effects, multi-sidedness, lock-in effects, big data discrimination and an absence of sufficient multi-homing.

The specific concerted actions caught and addressed by the Platform Guidelines comparing to traditional anticompetitive behaviors are:

• Using technical methods for communication of intention;
• Using data and algorithms to achieve concerted action.
• Using technical methods in automated price setting;
• Using data and algorithms for direct or indirect price restriction;
• Using technical methods, data and algorithms for restricting other trading conditions and eliminate or restrict competition.

With the ever-increasing globalization of business operations in particular in the digital domain and in view of the above differences and resemblances of different jurisdictional anti-monopoly regimes, we see more cooperation between jurisdictions. The Chinese authorities will continue to seek guidance and expertise from the EU Commission, and it will be interesting to see what impact this cooperation will have on China’s future antitrust legislation and ongoing enforcement. Business in China may benefit from the improved efficiency as a result of information exchange, but companies should be aware that the increased cooperation of authorities between jurisdictions may magnify local issues, which will require close communication and exchange of risk alerts between legal practitioners in each jurisdiction.

For more information please contact Serena Du or Sven-Michael Werner.

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