The new Anti-Monopoly Law prohibits many practices that have previously been common in China*, and business operators found to be in violation of the law face significant penalties (up to 10% of turnover, in many cases). Businesses with operations, customers or investments in China should carefully consider how the Anti-Monopoly Law affects them, and take appropriate steps to ensure compliance.
This page will introduce you to the key elements of the Anti-Monopoly Law, and link you to Mayer Brown publications that explain the law's development, scope and potential impact. Because the Chinese Government is still developing the many regulations that will govern the law's application to particular sectors and practices, we will be updating these articles regularly.
The Anti-Monopoly Law's "Three Pillars"
Before firms can carry out a "concentration" that exceeds certain thresholds, they will need to notify the Chinese government of the transaction and receive clearance, which can take 30 to 180 days (although expedited clearance may be available in some cases). The Anti-Monopoly Law also requires prior government review and approval before foreign companies can make investments or acquisitions that "could affect national security." In this regard, China has established its national security review regime in 2011.
Prohibited "Monopoly Agreements"
The Anti-Monopoly Law prohibits "monopoly agreements" - agreements between competing businesses or trading partners containing certain restrictions on competition. "Horizontal" monopoly agreements include agreements between competitors to fix prices, limit production or sales volumes, share markets, restrict technology purchases or development, or to boycott competitors or customers. "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.
Additionally, the law allows Chinese regulatory authorities to determine whether other types of horizontal or vertical conduct breach the prohibition against monopoly agreements. Accordingly, businesses need to be mindful of the potential for regulatory review of other common business practices, such as exclusive dealing and exclusive distributorships, restrictions on the parties to whom resellers can supply or the imposition of exclusive territories on resellers.
This prohibition against monopoly agreements is subject to a range of exceptions: it does not apply to restrictions that improve technology, improve product quality or production efficiency, enhance the competitiveness of small or medium-sized companies, protect the parties from economic downturns, protect "legitimate interests" relating to foreign trade and economic cooperation, or achieve "social public interests" such as energy conservation or environmental protection. But it is the parties' burden to show that an exception applies, and it remains to be seen how receptive the Chinese government will be to proffered exceptions.
Abuse of a Dominant Market Position
As in Europe and elsewhere, the Anti-Monopoly Law prohibits a business from abusing a dominant market position. Acts that may constitute "abuse" of that position include the sale of products at "unfairly high prices," the act of selling below cost (where it cannot be otherwise justified), refusing to trade with partners, or imposing unreasonable trading conditions or "tie-ins" to sales. Thus, just as in Europe, unilateral conduct that is legal in the United States will create legal exposure in China for some dominant firms.
This is particularly important because some small firms may be deemed "dominant" if they compete in concentrated markets. A business is presumed (rebuttably) to be dominant in a market if it has a market share of 50 percent or more. But it also may be deemed dominant based on its market share in conjunction with other firms' larger shares. Thus, if a business's market share is as low as 10 percent, that business will be presumed dominant if it and any other firm have a combined share of 66 percent or more, or if it and two other firms have a combined share of 75 percent or more. Small firms in concentrated markets will thus need to be alert to the likelihood of governmental scrutiny of distribution practices that may be crucial to their survival and growth.
* References to "China" refer to the People's Republic of China, and do not include the Hong Kong Special Administrative Region, The Macau Special Administrative Region or Taiwan. These jurisdictions have competition laws and policies applicable to conduct in (or concerning) domestic markets.
Note that the articles linked from this resource site are accurate as of their publication date. Mayer Brown personnel should be consulted regarding updates and new developments before information in these articles is relied upon.
China's first comprehensive competition law commenced August 1, 2008, and after significant capacity-building by China's antitrust agencies enforcement of the law is now ramping up.