The Implementation of China's
Anti-Monopoly Law—
Achievements and Challenges
Prof. Xiaoye Wang
Hunan University &
Chinese Academy of Social Sciences
23/10/2015
13th Annual Competition Law and
Economics Workshop
1
Outline
• Introduction of the China’s AML
• Enforcement of the Ministry of Commerce
（MOFCOM）
• Enforcement of the National Development and
Reform Commission （NDRC）
• Enforcement of the State Administration for
Industry and Commerce （SAIC）
• Enforcement of the Courts
• Remained Problems and Challenges
• Conclusions
23/10/2015
13th Annual Competition Law and
Economics Workshop
2
I. Introduction
• The AML was enacted in Aug. 2007.
• After the law came into force in Aug. 2008, the State Council
decided that three agencies have AML enforcement powers:
– The MOFCOM is in charge of merger control；
– The NDRC is responsible for tackling pricing-related
conduct involving monopoly agreements, abuse of
dominance and abuses of administrative powers that
eliminate or restrict competition.
– The SAIC has enforcement powers for other antitrust cases
falling outside the jurisdiction of MOFCOM and NRDC.
• The courts have jurisdiction over private antitrust litigation.
23/10/2015
13th Annual Competition Law and
Economics Workshop
3
II. Enforcement of the MOFCOM
• MOFCOM is a ministry-level agency directly under the State
Council, and in 2008 it set up an Anti-Monopoly Bureau (AMB)
in charge of the merger review process.
• This Anti-Monopoly Bureau consists of seven divisions:
– General Office,
– Competition Policy Division,
– Consultation Division (Investigation Division I ),
– Legal Division (Investigation Division II ),
– Economic Division (Investigation Division III),
– Supervision and Law Enforcement Division,
– Office coordinating the activities of the Anti-Monopoly
Commission – an inter-ministerial policy body.
23/10/2015
13th Annual Competition Law and
Economics Workshop
4
II. Enforcement of the MOFCOM
• MOFCOM has put significant resources into drafting
implementing rules for the AML in the area of merger control：
• Drafted the Guidelines on Market Definition in the name of the
Anti-Monopoly Commission;
• Enacted lots of regulations, measures, guiding opinions and other
normative texts in respect of the notification of concentration,
assessment of the Impact on competition of concentrations,
imposition of restrictive conditions on concentrations and so on.
• In April 2004, it issued the merger control procedure for simple
cases.
23/10/2015
13th Annual Competition Law and
Economics Workshop
5
II. Enforcement of the MOFCOM
• Since the AML came into force, MOFCOM received more than
1200 notifications, and made more than 1000 decisions.
• From 2011 onwards, the number of notifications has
stabilized at around 200 per year, and only in the first half of
2015, 160 filings and 153 decisions.
• The companies that filed notifications were mostly foreign
companies.
• Most recently, there is an increase of notifications filed by
state-owned enterprises.
23/10/2015
13th Annual Competition Law and
Economics Workshop
6
II. Enforcement of the MOFCOM
• Among the over 1,000 decisions to date:
– 24 approved with restrictive conditions
– 2 prohibited
– More than 97% notifications approved without conditions
• The first prohibition was Coca-Cola’s planned acquisition of
Huiyuan Juice in March 2009,
• The second one occurred on June 17, 2014 which blocked the
"P3 transaction“ which should create a joint venture between
the three European shipping lines: Maersk, MSC and CMA
CGM.
• The reasons for imposing remedies or blocking the
transactions were manifold, ranging from horizontal unilateral
and coordinated effects, to vertical or conglomerate theories.
23/10/2015
13th Annual Competition Law and
Economics Workshop
7
II. Enforcement of the MOFCOM
• Recently, MOFCOM has shown enforcement against breaches
of the AML's merger control provisions.
• Last December, MOFCOM adopted two decisions against
Western Digital for failure to comply with a prior remedies
decision, and one decision against Tsinghua Unigroup for
failure to file a reportable transaction.
• The AML sets a maximum penalty of RMB 500,000 for merger
control, and in these cases, Western Digital and Tsinghua
Unigroup were fined only RMB 300,000 .
• It seems that MOFCOM may be keen to use the threat of
"naming and shaming" through publication of the
infringement decision as a way to deter illegal conduct.
23/10/2015
13th Annual Competition Law and
Economics Workshop
8
II. Enforcement of the MOFCOM
• The regulation on the simplification of the merger control
procedure for simple cases brings considerable progress：
• Following transactions could be qualified as “simple cases” :
– combined market share for horizontal M&A is below 15%;
– respective market share for non- horizontal M&A below 25 %;
– JV established outside China does not engage in any business
activities in China;
– acquisition of equity or assets of a foreign enterprise which
does not engage in any business activities in China;
– JV controlled by at least two undertakings will be controlled by
one or more of them.
• Since the simplified procedure was issued, the merger review
efficiency has been significantly
increased .
13th Annual Competition Law and
23/10/2015
Economics Workshop
9
II. Enforcement of the MOFCOM
• Along with the increasing experiences, MOFCOM shows an
increasing self-confidence. I take two prohibitions as an example.
• Coca-Cola/Huiyuan deal was a takeover of a domestic company by a
foreign company, while the P3 case concerned three European
players.
• Coca-Cola/Huiyuan deal needed only Chinese antitrust clearance,
while various antitrust agencies around the world investigated the
P3 case, for example the Federal Maritime Commission in the US
gave green light, and the European Commission decided not to
oppose.
• That means that in the Coca-Cola/Huiyuan deal, MOFCOM may not
have anticipated the repercussions of its decision, and in contrast,
MOFCOM must have been fully aware of the echo that its decision
in the P3 transaction would
cause.
13th Annual
Competition Law and
23/10/2015
Economics Workshop
10
III. Enforcement of the NDRC
• Within NDRC, the unit responsible for antitrust enforcement is
the Price Supervision and Anti-Monopoly Bureau (“AMB”).
The AMB has around 46 staffs in total, and about 30 working
on AML matters.
• Unlike MOFCOM where only the central ministry in Beijing has
AML enforcement powers, the AMB under the NDRC
delegated these powers to the subordinate departments at
the provincial level.
• NDRC has issued the Anti-Price Monopoly Regulation and the
Enforcement Procedure for Anti-Price Monopoly, and recently
is drafting 6 Guidelines concerning IP, Automobile industry
and so on.
• Since 2013, NDRC 's focus has shifted more to actual cases.
23/10/2015
13th Annual Competition Law and
Economics Workshop
11
III. Enforcement of the NDRC
• Towards the end of 2011, NDRC announced its investigation into
China Telecom and China Unicom on national TV.
• NDRC seems to have had the suspicion that the two telecom
operators had engaged in a “margin squeeze” and “discriminatory
treatment”in order to obstruct their competitors in the broadband
access market, thereby committing an abuse of dominance.
• Around a month after the announcement, China Telecom and China
Unicom reportedly put forward a 'reform program' and requested
NDRC to "suspend" the investigation.
• Since then, NDRC indicated that this case is not yet closed and it
continues to monitor the conduct of the two giants.
• It is possible that politics played a role in the "change" of NDRC's
stance.
23/10/2015
13th Annual Competition Law and
Economics Workshop
12
III. Enforcement of the NDRC
• Since 2013, NDRC issued a lot of significant decisions with imposed
fine over RMB 100 million：
• Cartel case against LCD panels manufactures ；
• RPM cases against two white liquor producers Maotai & Wuliangye ；
• RPM cases against Baby milk formula suppliers ；
• Cartel case against cement companies in Jilin province；
• Cartel case against insurance companies in Zhejiang province；
• Cartel cases against 12 Japanese auto parts suppliers；
• RPM cases against luxury car supplier including Chrysler, Faw
Volkswagen, Audi, Mercedes-Benz, Dongfeng-Nissan.
• Price reduction is the main measure of luxury car suppliers.
23/10/2015
13th Annual Competition Law and
Economics Workshop
13
III. Enforcement of the NDRC
• Most important case by the NDRC was Qualcomm case.
• According to the decision, Qualcomm has abused its dominant
position in wireless communication SEPs licensing market and the
baseband chip market including the following behaviors:
– Charging unfairly high royalties;
– Tying non-SEP licenses to SEP licenses without justifiable
reasons；
– Attached unreasonable condition to the sale of its baseband
chips;
• NDRC ordered Qualcomm to stop its unlawful acts and imposed a
fine of 8% of its sales revenue in China in 2013, totaling RMB 6.088
billion.
23/10/2015
13th Annual Competition Law and
Economics Workshop
14
III. Enforcement of the NDRC
• Qualcomm cooperated with the agency and proposed packaged
rectification measures, including:
– Using a royalty base of 65% of the net sale price of the device
(mobile phone) used in China;
– Providing patent lists to Chinese licensees, and not charge
royalties for expired patents;
– Not require Chinese licensees to grant cross licenses for free;
– Not tie non-SEPs without justifiable reasons;
– Not require, as a condition of sale of baseband chips, Chinese
licensees to sign a license agreement containing unreasonable
terms.
• Qualcomm expressed it will continue its investment in China and
looks forward to further13th
development
as well.
Annual Competition Law and
23/10/2015
Economics Workshop
15
IV. Enforcement of the SAIC
• SAIC also has the status as ministry-level organ under the State
Council, in charge of market supervision and regulation.
• SAIC‘s jurisdiction covers company registration, unfair
competition, consumer protection, trademark protection …
• Within SAIC, the unit responsible for AML enforcement is the
Anti-Monopoly and Anti-Unfair Competition Enforcement
Bureau.
• The AML allows SAIC to delegate enforcement powers to local
offices but unlike NDRC, SAIC has not granted automatic
authorization to them, and instead, it decides on a case-by-case
basis to delegate powers to provincial level.
23/10/2015
13th Annual Competition Law and
Economics Workshop
16
IV. Enforcement of the SAIC
• SAIC has issued two procedural regulations and three
substantive regulations covering monopoly agreements, abuse of
dominance and anti-competitive abuses of administrative
powers. In April 2015, SAIC issued a regulation on anti-monopoly
enforcement in the field of IPR.
• In terms of the case work, there were about 20 published on the
website, and 43 have been investigated since the AML became
effective.
• SAIC has been mainly focused on local cartels, and most of these
cases involves anti-competitive conduct by the industry
associations.
• Since recent years, SAIC has started to target Microsoft, but not
showed progress in this13thcase
to date.
Annual Competition Law and
23/10/2015
Economics Workshop
17
V. Enforcement of the Courts
• The AML gives the courts jurisdiction over two kinds of antitrust
cases:
– private litigation,
– administrative law litigation.
• Until the end of 2014, the courts have accepted 274 private
antitrust lawsuits, 250 were concluded.
• The majority of the cases were abuse of dominance, such as the
actions against China Mobile, China Telecom, InterDigita, Tencent.
• Most of the actions were rejected, with a few notable exceptions,
for instance Rainbow v. Johnson & Johnson as an exception in the
monopoly agreements area, and Huawei v. InterDigital are
exceptions in the area of abuse of dominance.
23/10/2015
13th Annual Competition Law and
Economics Workshop
18
V. Enforcement of the Courts
• Among all the cases, there are three important for different
reasons : Qihoo 360 v. Tencent, Huawei v. InterDigital and
Rainbow v. Johnson & Johnson
• The Qihoo 360 v. Tencent is the first and so far only judgment
where the SPC has applied the AML.
• The question at stake was whether Tencent had abused a
dominant position through exclusive dealing or bundling,
thereby foreclosing Qihoo 360.
• The SPC cleared Tencent of all charges. Even after concluding
that Tencent held a market share over 80% for instant
messaging services on both PCs and mobile devices in China,
the SPC ultimately did not find Tencent to be dominant, and
additionally, it analyzed the lack of "anti-competitive effects"
of Tencent's conduct. 13th Annual Competition Law and
23/10/2015
Economics Workshop
19
V. Enforcement of the Courts
• In Huawei v. InterDigital, Huawei sued InterDigital in two actions.
• In one of the actions, Huawei alleged that InterDigital had abused
its dominance by way of demanding excessive royalties for its
SEPs and bundling SEPs with non-SEPs;
• In the other action, Huawei asked the court to determine a
FRAND royalty rate for the licensing of InterDigital's SEPs.
• The first instance and the appellate court agreed with the plaintiff,
and held InterDigital to be in breach of the AML and set a FRAND
rate at 0.019% of the price of the Huawei’s end products.
• The significance of this case is that it set the scene for a number
of regulatory and judicial actions in China against allegedly
abusive conduct by SEP holders.
23/10/2015
13th Annual Competition Law and
Economics Workshop
20
V. Enforcement of the Courts
• The Rainbow v. Johnson & Johnson case stands out for the detailed
judgment on the effects of RPM.
• The Shanghai Intermediate Court as first instance ruled for
defendant Johnson & Johnson, finding that the plaintiff – a former
distributor of Johnson & Johnson’s products sold to Beijing
hospitals – had not sufficiently shown that the RPM clause in the
contract had an anti-competitive effect.
• On appeal, the Shanghai High Court reversed, and held that
Johnson & Johnson had breached the AML's vertical monopoly
agreements provision.
• The judgment by the High Court is significant, as it provided a
lengthy in-depth analysis of the defendant‘s conduct and its
effects, as well as an interesting interpretation of the law on RPM.
23/10/2015
13th Annual Competition Law and
Economics Workshop
21
VI. Remained Problems and Challenges
• Despite of the achievements, the problems are still remained.
• Firstly is insufficient mechanisms against administrative monopoly
which mean the governmental departments abuse their public power
to restrict competition, and this kind of restriction normally benefits
the state-owned enterprises.
• NDRC and SAIC have dealt with a few cases related administrative
monopoly so far, but the influence is not far-reaching.
• Article 51 of the AML confers power to tackle such conduct to the
“superior authority” of the violator. However, it is difficult for the
superior authorities to keep neutral in dealing with the disputes
involving their subordinate departments.
• Antitrust law alone is not sufficient to tackle administrative
monopolies..
23/10/2015
13th Annual Competition Law and
Economics Workshop
22
VI. Remained Problems and Challenges
• Second is insufficient independence of the anti-monopoly
enforcement that means the authorities should be able to enforce
the AML without interference from other governmental
departments.
• The practice has shown that, in the case involving large state-owned
enterprises, antimonopoly agencies are not able to fully maintain
their independence.
• An important weakness of the three antitrust agencies in China is
that they are inserted within MOFCOM, NDRC and SAIC, and the
status level is not high enough for enforcing the AML.
• If the three agencies merger as a single ministry-level agency, the
independence and authority of the AML enforcement would be
much higher.
23/10/2015
13th Annual Competition Law and
Economics Workshop
23
VI. Remained Problems and Challenges
• Third is the need to improve the normative framework.
• For example, although the merger control provisions focus on the
criterion of an acquisition of a ‘controlling right’, there is no
guidance or its implementing rules on what a controlling right is.
• There are also ambiguities as how to interpret the AML's provisions
on monopoly agreements and abuse of dominance.
• As noted, NDRC held RPM to amount to illegal monopoly
agreements. If the RPM be exempted according to Art. 15, the
defendant must show that the RPM practice led to positive effects
on competition in the market.
• But in a RPM case dealt by courts, the plaintiff needed to prove
that the RPM practice led to negative effects on competition in the
market.
• This in turn indicates that more detailed guidance on the various
AML provisions would be a welcome development.
23/10/2015
13th Annual Competition Law and
Economics Workshop
24
VI. Remained Problems and Challenges
• Forth is a pressing need to enhance the transparency and
procedure rule of the enforcement .
• The transparency of the enforcement has become a focus point
for the general question in the foreign press on China’s antimonopoly enforcement.
• For example, the NDRC announced an imposed fine as high as
0.11 billion RMB on the insurance industry in Zhejiang province in
September, 2014. However, the scrupulous reader can find this
written decision was made in the end of 2013. That means that
this decision by NDRC was not published timely.
• There are also other stories shown that the transparency and the
procedure of the AML enforcement are necessary to be complete
and improved.
23/10/2015
13th Annual Competition Law and
Economics Workshop
25
VII. Conclusions
• Promulgation of the AML reflect China's desire to implement
market economy, and the enforcement of the AML should be
deemed as a milestone of Chinese economic reform.
• Given China's large market and growing economy, the AML
has become one of the most influential antitrust systems in
the world.
• As the discussed above, there has been a gradual yet
perceptible change in the quality and intensity of AML
enforcement over the years, in particular the case against
Qualcomm and the prohibition of the P3 transaction
symbolize this trend.
23/10/2015
13th Annual Competition Law and
Economics Workshop
26
VI. Conclusions
• This trend occurs against the backdrop of increasing casehandling experience and self-confidence of the enforcement
agencies in China, as well a surge of sophisticated number of
complainants willing to use the AML procedures to defend
their interests.
• Nonetheless, other policy developments are also very
necessary, in particular in the respects of the administrative
monopoly. It is clear that AML enforcement alone is not
sufficient to tackle administrative monopolies at the root. A
deepening of economic reforms, including changes to
inappropriate state monopolies, is very required.
23/10/2015
13th Annual Competition Law and
Economics Workshop
27
Thank you very much!
[email protected]
23/10/2015
13th Annual Competition Law and
Economics Workshop
28