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An Overview of the Anti-monopoly Law Amendment in China: Changes and Expectations

Sun, 11 Sep 2022
Categories: Insights
Contributors: Qian Wu , Qian Li
Editor: C. J. Observer

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On June 24, China amended its Anti-monopoly Law for the first time since its effect in 2008. Qian Wu (Ph.D. candidate at Maastricht University. Researching project: ‘Tying in Digital Platforms under the Competition Legal Framework in China and the EU—A Comparative Law and Economics Analysis’) and Qian Li (Ph.D. candidate at Maastricht University. Researching project: ‘AI-enabled Price Discrimination: A Competition Law Perspective’) have provided a brief overview of notable revisions of the Anti-monopoly Law. 

 

Key Takeaways:

  • The Anti-monopoly Law (AML) Amendment 2022 reaffirms the fundamental role of competition.
  • The AML Amendment 2022 specifies the rules regarding monopolistic agreements, abuse of dominance, the concentration of undertakings, and abuse of administrative power.
  • The AML Amendment 2022 increases fines and penalties for illegal acts with enhanced deterrence effects.

 

Backgrounds 

Chinese Anti-monopoly Law was adopted in 2007 and became effective in 2008 (The AML 2008). The amendment of the AML was listed in the Notice of the State Council’s 2015 Legislative Work Plan. In Jan 2020, the State Administration for Market Regulation released the Draft Amendment to ask for public opinions, boosting the amending process. After two reviews by the Standing Committee of the National People’s Congress in October 2021 and June 2022, China adopted the Amendment of the AML on June 24, which will be effective on August 1, 2022. 

After 14 years of implementation of the AML, it is time for the AML to undergo comprehensive revisions. Although it had played vital roles in, as Gong Zhang (Director General of the State Administration for Market Regulation) commented in 2021, protecting fair competition, improving the economy’s efficiency, safeguarding consumers’ and public interests, and promoting high-quality development in China. Along with the development of the socialist market economy, the implementation of the Anti-monopoly Law also reveals problems, including that relevant provisions are too generalised, the penalties for some monopolistic acts are not strong enough, and the enforcement system needs to be further improved. 

Structure and Notable Revisions 

The structure of the AML Amendment 2022 follows the AML 2008, consisting of eight chapters: 
• General provisions (Chapter 1, Article 1-Article 15) 
• Monopolistic agreements (Chapter 2, Article 16-Article 21) 
• Abuse of dominance (Chapter 3, Article 22- Article 24) 
• The concentration of undertakings (Chapter 4, Article 25-Article 38) 
• Abuse of administrative power (Chapter 5, Article 39-Article 45) 
• Investigation of monopolistic behaviour (Chapter 6, Article 46-Article 55) 
• Legal liabilities (Chapter 7, Article 56-Article 67) 
• Supplementary provisions (Chapter 8, Article 68-Article 70)

Below are a few notable revisions in these chapters in the AML Amendment 2022. 

1. The AML Amendment 2022 attaches importance to encouraging innovation and enhances the fundamental role of competition

Article 1 of the AML Amendment 2022 includes ‘encouraging innovation’ as an additional legislative purpose. Debates have arisen over this incorporation. Prof. Xiaoye Wang, one of the pioneers of Chinese AML, argues that, since well-functioning competition mechanisms naturally enhance firms' ability to innovate, adding the purpose of ‘encouraging innovation’ may not have much impact on enforcement. Instead, she advocates for simplifying the multiple goals of the AML. Prof. Jianzhong Shi, however, points out that China’s economy has transitioned from high-speed growth to high-quality development. Accordingly, encouraging technological innovation and business model innovation could be essential to accelerate the transformation of economic development mode, adjust the economic structure and improve the quality and efficiency of development. 

Although the AML Amendment 2022 still sets out multiple goals similar to the AML 2008, the fundamental role of competition has been reaffirmed in several aspects. 

Firstly, Article 4 paragraph 2 of the AML Amendment 2022 adds that China ‘adheres to the principles of marketisation & the rule of law, and strengthens the fundamental position of competition policy’. The phrase ‘the fundamental position of competition policy’ is not new. In October 2015, the ‘Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Reform of the Price Mechanism’(《中共中央国务院关于推进价格机制改革的若干意见》) already emphasised the importance of strengthening market price supervision and anti-monopoly law enforcement, and gradually establishing the fundamental position of competition policy. 

Secondly, Article 5 provides the legal basis for China’s fair competition review system. It stipulates that ‘administrative agencies and organisations empowered by laws and regulations to perform the function of administering public affairs shall conduct the fair competition review in the formulation of the rules involving economic activities of market players’. This system is designed to regulate government behaviour that would hinder fair competition from the source, aiming to improve the business environment and increase China’s opening up. In June 2016, the State Council issued ‘Opinions on the Establishment of Fair Competition Review System in the Construction of Market System’ (《国务院关于在市场体系建设中建立公平竞争审查制度的意见》), providing specific standards regarding how to conduct fair competition review by governments. Until July 2021, the fair competition review system has been successfully implemented in China at the national, provincial, municipal, and county levels, with positive achievements of cleaning up 1.89 million documents on various policies and measures affecting economic activities, revising and repealing nearly 30,000 documents, and identifying and correcting more than 4,100 policies and measures in violation of the review standards. 

The paramount significance of the fair competition review system seems undisputed among Chinese academics and practices. Qing Li, a former official who participated in the initial drafting process of the fair competition review system, explains that the fair competition review system is based on previous cases regarding the abuse of administrative power to exclude or restrict competition. This system deals with the relationships between competition and other policies, e.g., industrial policies. Prof. Yong Huang also stresses that during the covid-19 pandemic period, this system could regulate the formulation, introduction and implementation of investment, industrial, and consumption policies. That may include unreasonable and unfair entry thresholds, such as targeted government subsidies and support for some enterprises. Thus, it would play an essential role in safeguarding the survival and development of micro, small and medium enterprises. 

2. Significant improvement has been achieved in improving the legal framework of monopolistic agreements

Firstly, the AML Amendment 2022 introduces ‘no anti-competitive defence’ to assess vertical monopolistic agreements. The new Article 18 paragraph 2 clarifies that the price-fixing agreements and the minimum resale price restrictions agreements shall not be prohibited if undertakings can prove that they do not have the effect of excluding or restricting competition. Prof. Tao Wu points out that this revision affirms the achievements of the Hainan Yutai case. In the Hainan Yutai case, the Supreme People’s Court held that ‘even if the enforcement agency confirms the fact that there is a vertical monopoly agreement through investigation, undertakings can still submit evidence to prove that the agreement does not exclude and restrict competition’. 

Secondly, the AML Amendment 2022 introduces the safe harbour rule for assessing vertical monopolistic agreements. The new Article 18 paragraph 3 provides that the agreements stipulated in Article 18 (1)(2) shall not be prohibited when undertakings can prove their market share in the relevant market is lower than the standard set by the anti-monopoly enforcement agency of the State Council and meet other conditions set by the anti-monopoly enforcement agency of the State Council. Compared with the safe harbour rule in the draft Amendment that applied to horizontal and vertical monopoly agreements, the new law limits the scope of the safe harbour rule to vertical monopoly agreements. 

Thirdly, the AML Amendment 2022 provides the legal basis for behaviours in organising and aiding the conclusion of monopolistic agreements. Article 19 reads that ‘undertakings shall not organise other undertakings to reach monopolistic agreements or provide substantial assistance for other undertakings to reach monopolistic agreements’. 

3. The AML Amendment 2022 responds to challenges by the platform economy

The revised AML responds to challenges brought by platform economy both in Article 9 of Chapter 1 (General Provisions) and Article 22 of Chapter 3 (Abuse of Dominance). Article 9 stipulates that ‘undertakings shall not engage in monopolistic behaviours by using data and algorithms, technology, capital advantages, platform rules, etc.’. Article 22 introduces a second paragraph for abuse by dominant digital players, in addition to the first paragraph that includes six abusive behaviour and one miscellaneous provision. The second paragraph stipulates that ‘undertakings with a dominant market position shall not conduct abuse of dominance by using data, algorithms, technology, platform rules, etc., as specified in the preceding paragraph’. Prof. Xiaoye Wang comments that these articles show the policy-makers’ determination to strengthen enforcement in digital markets. In particular, the newly introduced paragraph 2 of Article 22 helps address abusive behaviours in digital platforms that may appear in some new forms, e.g., self-preferencing behaviours. 

4. Significant improvement has been achieved in the review of the concentration of undertakings

Firstly, competition agencies are entitled to investigate the suspected undertakings which reach the notification standard but fail to notify the concentration. Regarding the concentration of undertakings that ‘does not meet the notification standards stipulated by the State Council, but there is evidence that the concentration of undertakings has or may have the effect of eliminating or restricting competition’, the amended Article 26 stipulates that ‘the anti-monopoly law enforcement agency of the State Council may require undertakings to notify’. At the same time, paragraph three also sets out that if undertakings fail to notify per the provisions of the preceding two paragraphs, the anti-monopoly law enforcement agency of the State Council shall investigate according to this law. 

Secondly, the AML Amendment 2022 introduces the classification and grading review system for the concentration of undertakings. On April 10, 2022, the ‘Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of a National Unified Market’(《中共中央国务院关于加快建设全国统一大市场的意见》) emphasised ‘improving classification and grading review system for the concentration of undertakings’ in the section ‘Further regulating unfair market competition and market intervention’. In response, Article 37 was added to the new amendment, introducing a classification and grading review system for the concentration of undertakings while emphasising the strengthening of concentration review of essential areas such as the national economy and people’s livelihood. That means undertakings may face stricter review standards if the economic activities involved fall into the abovementioned vital fields. 

Thirdly, the AML Amendment 2022 introduces a ‘clock stop’ mechanism while reviewing the concentration of undertakings. The current Anti-Monopoly Law divides the review of concentration of undertakings into two stages: preliminary review and further review. In the further review stage, the anti-monopoly law enforcement agency may extend the review period in case of the law stipulates otherwise. However, even if the review period is extended, the time limit for centralised review is still subject to the rigid time limit of ‘accumulating no more than 180 natural days’. In practice, there has always been a contradiction between the large number of cases notified by undertakings and the small number of case-handling personnel. The establishment of the summary procedure and negotiation procedure has improved the efficiency of the review, but the contradiction has not been fundamentally resolved. 

In response, Article 32 of the AML Amendment 2022 is added to introduce a ‘clock stop’ mechanism for the suspension during the review of the notification of concentration of undertakings, that is, for 

(1) Failure to submit documents and materials as required makes the review work impossible; 

(2) It is necessary to verify new situations and new facts that have a significant impact on the review; 

(3) Additional restrictive conditions need to be further assessed, and the undertaking applies for suspension. 

In the above-mentioned three cases, the calculation of the review period can be suspended. 

5. The AML Amendment 2022 further specifies the assessment and enforcement of administrative monopoly

Firstly, the AML Amendment 2022 further clarifies the scope of administrative monopoly. The AML Amendment 2022 adds Article 40, which clarifies that administrative entities and organisations authorised by laws and regulations with functions of managing public affairs shall not abuse their administrative powers in the manner of signing cooperation agreements and memorandums with undertakings. That is to prevent other undertakings from entering the relevant market or implement unequal treatment to exclude and restrict competition. Furthermore, in Article 42, after the amendment, the original expression ‘excludes or restricts non-local undertakings from participating in local bidding activities’ is changed to ‘excludes or restricts undertakings from participating in bidding and other business activities’. 

Secondly, the involved administrative entities are obligated to cooperate with investigations. The AML Amendment 2022 adds Article 54 to specify that anti-monopoly law enforcement agencies shall conduct investigations on suspected abuse of administrative power to exclude or restrict competition per the law. The involved administrative entities or individuals must cooperate with the investigation. 

Thirdly, the competition agencies are entitled to interview the involved administrative entities in Article 55. In the meantime, Article 61 is added to clarify that administrative entities suspected of abusing administrative power to exclude or restrict competition are obliged to report the relevant compliance to its supervision authorities and anti-monopoly law enforcement agencies in writing. 

6. Undertakings and individuals face increasing fines and penalties for illegal acts with deterrence effects

The revised Article 62 greatly increases the fines and penalties for refusing or obstructing investigations to solve the outstanding problem of non-cooperation of relevant undertakings and individuals in anti-monopoly law enforcement investigations. (1) Article 62 makes the fine against undertakings or individuals a mandatory requirement by deleting the optional punishable expression. (2) Article 62 changes the upper limit of the number of fines against undertakings from ‘one million yuan’ to ‘one per cent of the turnover in the previous year’. (3) Article 62 raises the upper limit of fines for individuals from ‘100,000 yuan’ to ‘500,000 yuan’. Increasing the number of fines may create deterrence, which helps to urge the subject under investigation to cooperate with the investigation actively. 

The amended Article 63 adds provisions for aggravating fines. It provides when (1) the circumstances of violating this law are ‘particularly serious’, (2) the impact is ‘particularly odious’, and (3) the consequences are ‘particularly severe’, fines from more than twice but not more than five times the amount of fines specified in Articles 56, 57, 58, and 62 of this Law could apply. As such, for substantive violations such as monopoly agreements, abuse of market dominance, and illegal implementation of concentration of undertakings, the undertakings can be fined up to 50% of the previous year’s turnover. The undertaking can be fined up to 5% of the previous year’s turnover for procedural violations such as refusal and obstruction of cooperation with the investigation. 

7. Other rules 

Firstly, the AML Amendment 2022 establishes an anti-monopoly civil public interest litigation to safeguard social and public interests. Article 60 adds that ‘Where an undertaking engages in monopolistic conduct that damages public interests, the people’s procuratorate at or above the level of cities divided into districts may file a civil public interest lawsuit with the people’s court in accordance with the law.’ This provision remarks on the civil public interest litigation system in the AML. 

Secondly, the AML Amendment 2022 explicitly states that anti-monopoly enforcement agencies are responsible for the confidentiality of personal privacy and information. The amended Article 49 includes the obligation of anti-monopoly law enforcement agencies and their staff to keep personal privacy and personal information known in the process of law enforcement confidential. 

Comments

As an increasingly crucial anti-monopoly jurisdiction, China’s journey towards a more effective AML enforcement never ends. On the third day following the adoption of the Amendment, the State Administration for Market Regulation released six sets of draft provisions addressing monopolistic problems in different areas to provide more clarity for undertakings. Public consultation on these draft provisions is currently underway until July 27. Qian & Qian are confident that a more professional and comprehensive AML enforcement can be expected in China in the future. 

 

 

References

Jianzhong Shi (2022), A Better Anti-monopoly Regime to Guarantee High-quality Development(更加完善的反垄断制度保障高质量发展), China Law Review(《中国法律评论》), 46 (4). (Forthcoming) 

Yong Huang (2020, June 30), Fair Competition Review Safeguards the Survival and Development of Micro, Small and Medium Enterprises, Legal Daily. 

Qing Li (2020), Experience and Witness: The First 12 years of the Anti-monopoly Law(亲历与见证:《反垄断法》的第一个12年).In Qing Li (Ed.), Twelve Years of Anti-monopoly in China: Review and Prospect, 126-133. CITIC Press Group. 

Tao Wu (2022), Improvement of the Determining Framework of Illegality for Monopoly Agreements: Some Comments on the Relevant Provisions of Draft Amendment of China’s AML (我国垄断协议违法性认定框架的改进:评《<反垄断法>修订案草案》相关条款), Competition Policy Research(《竞争政策研究》), 41 (2), 5-11. 

Xiaoye Wang (2022), Comments on the Anti-monopoly Law (Draft)(《反垄断法(修正草案)》的评析), Contemporary Law Review(《当代法学》), 36 (3), 36-51. 

 

*The Chinese material in this post is translated by Qian & Qian.

 

Photo by Max Zhang on Unsplash

Contributors: Qian Wu , Qian Li

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