Culminating a 13-year drafting process, on August 30 the Standing Committee of the National People’s Congress enacted China’s first competition law, the Anti-Monopoly Law ( [Fan Longduan Fa] ). This event constitutes a major milestone in China’s development and attendant regulation of an increasingly market-driven economy, and is of major importance to both Chinese and foreign companies. In particular, the law applies to monopoly conduct in the People’s Republic of China (PRC) and to monopoly conduct outside the PRC that has a restrictive effect on competition in the PRC (Article 2). Although the law does not address the status of Hong Kong, Macau and Taiwan, those areas may be considered as lying outside of the PRC for purposes of the law.
The law entrusts enforcement of its antitrust-focused provisions to a new agency, the anti-monopoly implementation or enforcement authority (Article 10). The authority will perform work (including merger reviews) currently handled by other agencies–the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC)–under existing Chinese law. The authority is empowered to investigate suspected anti-competitive conduct through inspections, questioning of individuals and examination of business records–subject to the requirement that authority staff first submit a written report to the authority’s senior officials (Article 39). The authority is required to keep confidential commercial secrets it receives in the process of enforcement (Article 41).
Plans for staffing the authority are unclear, and the rivalry between MOFCOM and SAIC may not yet be fully resolved. Moreover, there is no indication in the law that the National Development and Reform Commission (NDRC) is relinquishing its price regulatory function. The law also provides for an anti-monopoly commission, but its roles are primarily research and coordination rather than policy making and implementation (Article 9).
The Anti-Monopoly Law prohibits discriminatory and anti-competitive practices by local administrative and public bodies against products, business operators and investors from other parts of China. The Anti-Unfair Competition Law already contains less detailed but similar prohibitions. It also prohibits administrative bodies from compelling business operators to engage in monopolistic activities and from abusing their administrative power by formulating provisions eliminating or restricting competition.
Fines for monopoly agreements and abuses of dominant position may range as high as one to ten percent of the wrongdoing company’s total sales volume in the relevant market during the previous year (Articles 46 and 47). If the parties have not yet implemented a monopoly agreement, however, the fine will not exceed 500,000 RMB (about $66,000 USD) (Article 46). The law also provides for fines for undertaking a merger in violation of the law’s notification requirement, also capped at 500,000 RMB (Article 48). The authority may also order divestitures and other steps necessary to restore competitive conditions that existed before the merger (Article 48). Finally, the law provides that civil remedies may be available to injured parties under other legislation (Article 50).
The law will become effective on August 1, 2008 (Article 57). Much will remain uncertain until the National People’s Congress issues an interpretation of the law, the authority is established, and the authority issues implementing regulations. In the interim, companies that are active or wish to become active in China are well-advised to review their existing business practices to determine whether they comply with the law as written.
Although the law is more detailed than the basic competition statutes in the United States and the European Union, those statutes have been supplemented over the decades by a huge body of judicial decisions, administrative guidance and practical experience. It will take time to establish such a body of knowledge in China, particularly given the limited number of government officials with legal and economic training in competition law. The authority will, therefore, enjoy substantial discretion at the outset. This will be of particular concern with respect, for example, to intellectual property rights (IPR). The law provides that the exercise of IPR established in accordance with intellectual property law will not be subject to the law (Article 55), but the abuse of IPR will be subject to the law. Where and how the line between exercise and abuse is drawn will be of great concern to IPR holders.
