Journal of Antitrust Enforcement, Vol. 1, No. 2 (2013), pp. 247–271
doi:10.1093/jaenfo/jnt010
Published on Advance Access August 16, 2013
Five years of implementation of
China’s Anti-Monopoly
Law—achievements and challenges
Xiaoye Wang* and Adrian Emch†
China’s Anti-Monopoly Law came into effect five years ago—on 1 August
2008—and as such is one of the youngest antitrust laws in the world. This article
explores the achievements of the competition regime over the past years, and the
challenges lying ahead. The Anti-Monopoly Law has been enforced by a number of
agencies—namely, the Ministry of Commerce, the National Development and
Reform Commission, the State Administration for Industry and Commerce and
the courts through some influential cases, such as a few conditionally cleared
merger decisions and the investigation against China Telecom and China
Unicom. Without underestimating these successes, these cases also reveal the
considerable challenges faced by the new regime.
Keywords: antitrust, anti-monopoly law, Ministry of Commerce, National
Development and Reform Commission, State Administration for Industry and
Commerce, private antitrust litigation
JEL code: K21
I. Introduction
As China presses forward with reforming its economy, the nation has made
considerable achievements in establishing a legal system for its socialist market
economy. One accomplishment is the enactment of the Anti-Monopoly Law
(AML).1 The law was promulgated on 30 August 2007 and came into effect
on 1 August 2008.
* Distinguished Professor of Law at Hunan University and Professor of Law at the Chinese Academy of
Social Sciences, and Member of the Consultative Expert Panel of the Anti-Monopoly Commission under the
State Council of the People’s Republic of China. Email: [email protected].
† Partner at Hogan Lovells in Beijing, and lecturer at Peking University IP School. Email: adrian
[email protected]
1
Anti-Monopoly Law of the People’s Republic of China [2007] Presidential Order No 68, 30 August 2007.
ß The Author 2013. Published by Oxford University Press. All rights reserved. For permissions,
please e-mail: [email protected]
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Together with the Contract Law (promulgated in 1999) and the Property
Rights Law (promulgated in 2007), the AML indicates that China has followed
three basic principles of a market economy: freedom of contract, protection of
ownership, and free competition. Furthermore, the promulgation of the AML
reflects China’s desire to implement market and competition mechanisms as the
fundamental means for allocating resources and developing the domestic
economy.
Since its entry into force in August 2008, the AML has been in effect for over
five years. When compared to the antitrust history of other jurisdictions, five
years are a relatively short period of time. Still, the AML’s enactment and
implementation—in particular the early antitrust cases—have attracted attention
worldwide.
This article tries to shed some light on what has been achieved over these
years, and what challenges remain: Section II looks at achievements of the various enforcement authorities and the courts. Section III describes the challenges
faced by the new regime. One of the most efficient ways to overcome these
challenges would be to establish a single independent antitrust authority.
Section IV concludes.
II. Achievements by the antitrust authorities and courts
Article 10 of the AML stipulates that an unidentified ‘anti-monopoly enforcement authority’ (or authorities) under the State Council is in charge of the
enforcement work. In the end, according to the State Council’s decisions
through the ‘san ding’ programme,2 three organizations assume powers to
enforce the AML: the Ministry of Commerce (MOFCOM) is in charge of
merger control. The National Development and Reform Commission
(NDRC) is responsible for tackling priced-related conduct involving monopoly
agreements, abuse of dominance and abuses of administrative powers that eliminate or restrict competition. Finally, the State Administration for Industry and
Commerce (SAIC) has enforcement powers for other antitrust cases falling outside the jurisdiction of MOFCOM and NRDC.
In turn, Article 50 of the AML lays down the basis for private antitrust
litigation, as another important way of enforcing the AML.
Below, we will look at how the three administrative enforcement authorities
and the courts have applied the AML in the past five years.
2
China Economy Net, ‘The New Plan of Responsibilities, Organisations and Head Counts Has Been
Approved, the ‘‘Three Carriages’’ of Antitrust Law Have Been Formed’ (24 August 2008) <http://www.ce.cn/
xwzx/gnsz/gdxw/200808/24/t20080824_16592755.shtml> accessed 1 August 2013.
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Ministry of Commerce
Enforcement profile
In September 2008, MOFCOM set up the Anti-Monopoly Bureau which was
put in charge of the merger review process. This bureau has long consisted of
six—today, seven—divisions: General Office, Competition Policy Division,
Consultation Division, Legal Division, Economic Division, Supervision and
Law Enforcement Division, and the new office for coordinating the activities
of the Anti-Monopoly Commission—an inter-ministerial policy body.3 Overall,
the Anti-Monopoly Bureau has a staff of around 30 officials or more.
MOFCOM has helped prepare a number of rules implementing the AML,
including:
the Measures on the Calculation of Sales Revenues for the Notification
Thresholds of Concentrations between Business Operators in the Financial
Sector, adopted in July 2009;4
the Measures on the Notification of Concentrations between Business
Operators, adopted in November 2009;5
the Provisional Regulation on the Implementation of Divestiture of Assets
or Business in Concentrations between Business Operators, issued in July
2010;6
the Provisional Regulation on the Assessment of the Impact on
Competition of Concentrations between Business Operators, adopted in
August 2011;7 and
the Provisional Measures on the Investigation and Handling of
Concentrations between Business Operators Not Notified in Accordance
with the Law, adopted in December 2011.8
MOFCOM is currently preparing the additional normative texts, in particular the
Provisional Regulation on Standards Used for Simple Cases of Concentrations
between Business Operators9 and the Regulation on the Imposition of Restrictive
Conditions in Concentrations between Business Operators.10
3
See AML, art 9.
Measures on the Calculation of Sales Revenues for the Notification Thresholds of Concentrations between
Business Operators in the Financial Sector [2009] MOFCOM Order No 10, 15 July 2009.
5
Measures on the Notification of Concentrations Between Business Operators [2009] MOFCOM Order No
11, 21 November 2009.
6
Provisional Regulation on the Implementation of Divestiture of Assets or Business in Concentrations
Between Business Operators [2010] MOFCOM Order No 41, 5 July 2010.
7
Provisional Regulation on the Assessment of the Impact on Competition of Concentrations Between
Business Operators [2011] MOFCOM Order No 55, 29 August 2011.
8
Provisional Measures on the Investigation and Handling of Concentrations Between Business Operators
Not Notified in Accordance with the Law [2011] MOFCOM Order No 6, 30 December2011.
9
Provisional Regulation on Standards Used for Simple Cases of Concentrations Between Business Operators
(DRAFT), 3 April 2013.
10
Regulation on the Imposition of Restrictive Conditions in Concentrations Between Business Operators
(DRAFT), 26 April 2013.
4
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From the AML’s entry into force until the end of March 2013, MOFCOM
had received 698 merger filings in total. Over the past two years, MOFCOM
received over 200 filings per year: in 2011, there were 205 and in 2012 there
were 207. The companies that filed the notifications included mostly foreign
companies but, increasingly, domestic companies as well. Even state-owned
enterprises have started to file notifications with MOFCOM. Of the filed transactions, by March 2013, MOFCOM had registered on file 627 and cleared 588
of them.
These statistics show that MOFCOM has granted unconditional clearance in
over 97 per cent of all cases.
Only one transaction was prohibited since the AML came into effect: on 18
March 2009, MOFCOM prohibited Coca-Cola’s planned acquisition of
Huiyuan Juice. Eighteen other transactions were conditionally approved:
InBev’s acquisition of Anheuser-Busch;
Mitsubishi Rayon’s acquisition of Lucite International;
General Motors’ acquisition of Delphi;
Pfizer’s acquisition of Wyeth;
Panasonic’s acquisition of Sanyo;
the acquisition of Alcon by Novartis;
Uralkali’s acquisition of Silvinit;
Alpha V’s acquisition of Savio;
the establishment of a joint venture between General Electric and the
Shenhua group;
Seagate’s acquisition of Samsung Electronics’ hard disk drive business;
Henkel and Tiande Chemical’s formation of a joint venture;
Western Digital’s acquisition of Hitachi Storage;
Google’s acquisition of Motorola Mobility;
United Technologies’ acquisition of Goodrich;
Wal-Mart’s acquisition of a 33.6% controlling stake in Newheight;
the formation of a joint venture between ARM, Giesecke & Devrient and
Gemalto;
Glencore’s acquisition of Xstrata; and
Marubeni’s acquisition of Gavilon.
On the positive side, these conditional clearance decisions demonstrate that
MOFCOM clears transactions even if it finds them to have significant adverse
effects on competition, if the merging parties can put forward (in MOFCOM’s
view) suitable measures to eliminate those effects of the transactions.
On the negative side, some of these transactions appear to have no negative
impact on competition. For example, in the Glencore/Xstrata and Marubeni/
Gavilon transactions, MOFCOM imposed remedies in spite of the fact that
the merging parties had market shares below—at times even significantly
below—20 per cent. In addition, the MOFCOM procedure in both these
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cases was very drawn out—over a year from the moment of the initial filing until
clearance in Glencore/Xstrata, and around 10 months in Marubeni/Gavilon. In
both cases, the parties withdrew their notifications at the end of ‘phase 3’ in
the procedure (after around 180 days)—at the end of which a decision must in
principle be made according to the law—and re-filed them as new notifications.
These two transactions are no exceptions, as notification withdrawal and re-filing
seem to become more common lately. Beyond contentious cases such as
Glencore/Xstrata and Marubeni/Gavilon, the general feeling on the ground is
that the duration of the MOFCOM procedure is increasing; in many international deals, MOFCOM is the last antitrust authority to issue clearance
worldwide.
Increasing depth in analysis
MOFCOM’s first public decision under the AML was its conditional clearance
of Inbev’s acquisition of Anheuser-Busch.11 According to the public decision,
MOFCOM substantiated its conditional approval on the following basis:
the scale of this acquisition is very large, the market share of the new entity postmerger is relatively large, and [its] competitive strength increases significantly; in
order to lessen the negative impact likely to be created on competition in China’s
beer market in the future, MOFCOM attaches restrictive conditions to its review
decision, requiring Inbev to fulfill the following obligations.
The reasons given by MOFCOM in its decision raise a series of questions. For
example, as the decision states that ‘the market share of the new entity postmerger is relatively large’, people would be keen to know how large the market
share of the merged entity is. The decision further notes that the merged entity’s
‘competitive strength increases significantly’. Logically, people would also want
to know the degree of the entity’s competitive strength, and what kind of harm it
could inflict upon competition in China’s beer market.
The Inbev/Anheuser-Busch decision also required the merging parties to report
future M&A activity to MOFCOM. This drew widespread criticism because, in
reality, any concentration between business operators meeting the reporting
thresholds needs to be filed with MOFCOM anyway. Hence, there does not
appear to be a need for the decision to impose additional requirements on the
companies—unless MOFCOM’s intention was to obtain jurisdiction over transactions that are not reportable under the AML.
However, more recently, MOFCOM has started to improve the substantive competition analysis in its review of merger filings. In horizontal mergers MOFCOM
focuses on unilateral effects and coordinated effects, while in non-horizontal mergers MOFCOM frequently examines whether a transaction leads to foreclosure.
11
Inbev/Anheuser-Busc [2008] MOFCOM Public Announcement No 95, 19 November 2008.
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Unilateral effects
Unilateral effects occur where a merger creates or strengthens the merging
parties’ unilateral ability to restrict or eliminate competition, for example,
through unilateral price increases or output reduction post-transaction.12
In its decision of 11 June 2012 in the United Technologies/Goodrich case for
example, MOFCOM made a relatively detailed unilateral effects analysis.13
The two companies involved in that deal both manufactured aircraft power
systems. MOFCOM’s analysis started with the definition of the relevant
market. The decision noted that the relevant markets are those for aircraft
alternate current (AC) power systems, aircraft lighting systems, flight control
actuation systems, and aircraft engine control systems. As the parties’ business
activities are global and the products’ prices are set on a worldwide basis,
MOFCOM found the relevant geographic market to be global.
Then, MOFCOM analysed various factors to assess the transaction’s impact
on competition in the marketplace, and in particular focused on unilateral
effects. First, MOFCOM looked at the parties’ market share and the degree of
concentration in the relevant market. MOFCOM’s decision pointed out that, in
the aircraft AC power systems market, there were only six enterprises globally.
Among these, United Technologies and Goodrich were the world’s number 1
and 2 players, with market shares of 72 and 12 per cent, respectively. Hence, the
merged entity’s market share was 84 per cent, and the degree of market concentration is very high; MOFCOM noted that post-merger market concentration is
7158 on the Herfindahl–Hirschman Index (HHI), with an increase of 1728
points through the merger.
In addition, MOFCOM appears to have examined data on tenders and bids of
aircraft AC systems during the 2007–2011 period. The decision notes that in
many bids Goodrich was one of the few successful bidders against United
Technologies. MOFCOM also found United Technologies to have leading technology for aircraft AC power systems. Moreover, MOFCOM also analysed the
barriers to market entry and potential competition. The decision states that aircraft AC power system suppliers must not only meet specifications unique to an
aircraft’s platform, but must also have sufficient capital and advanced technology
in order to meet the various conditions for early development. MOFCOM also
found that once an aircraft’s platform is established, it will not change for a long
time, possibly decades. In MOFCOM’s view, this means that, despite
technological innovation and new aircraft platform development, market
access opportunities for new entrants are very limited and unpredictable.
12
Horizontal Merger Guidelines by U.S. Department of Justice and the Federal Trade Commission Issued:
19 August 2010, 20–23 <http://www.justice.gov/atr/public/guidelines/hmg-2010.pdf> accessed 1 August 2013;
and European Commission Guidelines on the assessment of horizontal mergers under the Council Regulation on
the control of concentrations between undertakings [2004] OJ C31/5, para 24ff.
13
United Technologies/Goodrich [2012] MOFCOM Public Announcement No 35, 15 June 2012.
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Hence, MOFCOM found that the merger had anti-competitive effects, and
thus imposed conditions—in terms of structural remedies—to its approval of the
deal. Interestingly, MOFCOM’s decision was made six weeks earlier than
the clearance decisions of the United States and European Union authorities
in the same transaction. This demonstrates MOFCOM’s confidence in this case,
although in most cases MOFCOM clearance comes forth after, not before, the
decision of the US and EU authorities.
Coordinated effects
Coordinated effects means that a merger may increase the probability that
companies in the relevant market more generally—beyond the merging
parties—coordinate their conduct. If there is a significant increase, then the
merger could be found to be anti-competitive.
In the Western Digital/Hitachi decision of 2 March 2012, for example,
MOFCOM made an analysis of the coordinated effects likely to be caused by
the deal. MOFCOM first defined the relevant market in this transaction:
MOFCOM found the relevant product market to be that for hard disk drives,
which are storage devices installed on personal computers and other consumer
electronics products. Since hard disk drives are purchased on a global basis, the
authority held the relevant geographic market to be worldwide.
MOFCOM’s decision pointed out that there were only five hard disk drive
manufacturers worldwide, that is, Seagate, Western Digital, Hitachi Storage,
Toshiba, and Samsung whose markets shares in 2010 were 33, 29, 18, 10, and
10 per cent, respectively. These data show that the market was relatively highly
concentrated. The MOFCOM decision also notes that there was high transparency in the market and a high degree of product homogeneity, and that
manufacturers in part used the same sales channels (ie distributors).
In addition, MOFCOM held that hard disk drives are high technology products, and that intellectual property rights and proprietary technology constitute
major entry barriers. The authority said that there had been a lack of new
entrants into the hard disk drive market for nearly 10 years.
Following its substantive analysis, MOFCOM determined that the merger
would eliminate one of the most important competitors in the market, thereby
increasing the risk that the remaining companies would coordinate their conduct
post-merger, thereby leading to anti-competitive effects. In addition, MOFCOM
looked at the unilateral effects of the transaction, and also found this aspect to be
problematic. As a result, MOFCOM approved this transaction subject to
conditions.14
14
MOFCOM also approved the acquisition by Seagate of Samsung’s hard disk drive business subject to
conditions, requiring the Samsung business to be acquired to remain as an independent competitor for at
least one year. See Seagate/Samsung, MOFCOM Public Announcement [2011] No 90, 12 December 2011.
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Foreclosure effects
Foreclosure effects in merger control refer to a situation where a merger between
an upstream and a downstream enterprise forces other companies from the
market or make it difficult for them to enter into the market. The Google/
Motorola Mobility case illustrates the issues arising in a vertical merger, bringing
together the Android operating system for mobile devices (upstream) and mobile
devices such as smartphones and tablets (downstream).
In its decision of 19 May 2012,15 MOFCOM found that, post-transaction,
Google would have the incentive and ability to offer Android to Motorola
Mobility on more favourable terms than to other mobile device manufacturers.
MOFCOM claimed that, for example, Google could provide an Android update
first to Motorola Mobility, placing rival mobile device makers into a disadvantageous position or making new entry into the market more difficult. As a result,
MOFCOM’s decision in Google/Motorola Mobility was different from the decisions of the European Commission and US Department of Justice; MOFCOM
imposed remedies, while all other antitrust agencies reviewing the transaction
worldwide issued unconditional clearance. MOFCOM’s conditional clearance
shows its increasing confidence to have its own views, even when they are very
different from antitrust regulators elsewhere.
Increased transparency
A certain degree of transparency is key for antitrust law enforcement. Only when
law enforcement is sufficiently transparent, can the public ‘supervise’ the government’s enforcement activities and the parties involved in transactions exercise
their rights in a timely and meaningful manner.
For MOFCOM in particular, its enforcement practice needs to be more transparent. Many transactions that are notified to MOFCOM involve multinational
companies. Therefore, transparency in MOFCOM’s law enforcement practice
not only affects its own credibility in the international community, but also
China’s prestige more generally.
By way of example, in the early Coca-Cola/Huiyuan case,16 MOFCOM’s
public decision discussed antitrust-related issues, and the transaction was determined to have adverse effects on competition in the relevant market. However,
the decision failed to explain these issues in the required detail. For example, the
decision gave the following three reasons on why MOFCOM decided to outright
block the transaction:
Post-transaction, Coca-Cola was found to acquire the ability to leverage its
dominant position in the carbonated soft drinks market into the fruit juice
market, harming fruit juice competitors and consumers.
15
16
Google/Motorola Mobility [2012] MOFCOM Public Announcement No 25, 19 May 2012.
Coca-Cola/Huiyuan [2009] MOFCOM Public Announcement No 22, 18 March 2009.
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Post-transaction, Coca-Cola would control two well-known juice brands,
‘Minute Maid’ and ‘Huiyuan,’ increasing the company’s control over the
juice market and raising entry barriers.
The transaction would have an adverse impact on domestic small- and
medium-sized enterprises in the fruit juice market and impair their ability
to compete and innovate, negatively affecting the sound development of
the Chinese juice industry.
However, the reasoning in the decision did not sufficiently explain many important aspects: how and why would Coca-Cola be able to leverage its dominant
position from carbonated soft drinks to fruit juices? What control would
Coca-Cola have over the juice market by the simple circumstance that it owns
two well-known brands? What is the competitive situation in the Chinese juice
market (eg MOFCOM did not indicate any market shares or even names of the
key players)? Given that the public decision did not address these questions,
people have raised doubts as to whether this transaction would actually have
an anti-competitive effect in the marketplace.
Compared with MOFCOM’s public decisions in the early days after the
AML’s entry into effect, its decisions in recent years have become somewhat
more transparent. For instance, in the case United Technologies/Goodrich case,
the MOFCOM decision not only contains information on the competitive situation in the relevant markets existing before the merger, but also discusses their
future development. In the Western Digital/Hitachi case, MOFCOM’s decision
contains information on the relevant markets, and market shares of the merging
parties and their competitors. At the same time, the decision notes that the hard
disk drive market was very transparent, a circumstance that MOFCOM found to
increase the probability for the remaining three market players to coordinate
their conduct, ultimately leading to anti-competitive effects. In the Henkel/
Tiande Chemical case, MOFCOM similarly specified the merging parties’
market shares, the degree of market concentration, their alleged extent of control
over the market, market entry and other factors. After assessing these factors,
MOFCOM came to the conclusion that the transaction could eliminate or
restrict competition.17
In 2011, MOFCOM issued the Provisional Regulation on the Assessment of
the Impact on Competition of Concentrations between Business Operator. This
regulation consolidated the use of the HHI in Chinese merger control.
MOFCOM has employed this index for assessing the degree of market concentration in several cases, such as Pfizer/Wyeth in 200918 and (more recently) United
Technologies/Goodrich. Its use of the HHI instrument shows that MOFCOM is
17
18
Henkel/Tiande Chemical [2012] MOFCOM, Public Announcement No 6, 9 February 2012.
Pfizer/Wyeth [2009] MOFCOM Public Announcement No 77, 29 September 2009.
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ready to study the antitrust experience of other countries that have a longer
antitrust track record.
The increase in transparency is also reflected in MOFCOM’s announcement,
at the end of 2012, of the names of all transactions cleared unconditionally since
the AML became effective in 2008.19 In spring 2013, MOFCOM issued made a
similar announcement for the first quarter of 2013, in which it also included
information on the time of approval of the transactions cleared unconditionally.
The background to this development is that Article 30 of AML requires
MOFCOM to publish its prohibition and conditional approval decisions, but
not the decisions clearing transactions unconditionally. However, there are a
series of significant issues with this provision. First, unconditional clearance
decisions should be published for the public to be able to monitor and evaluate
the authority’s practice. In fact, MOFCOM—as any authority—may make mistakes, and this can be the case for both transactions cleared conditionally as well
as those cleared unconditionally (and, of course, prohibition decisions). A wrong
MOFCOM decision could have a significant negative impact on the merging
parties and/or other entities or persons, no matter whether it is a decision
approving a deal without conditions or one with conditions.
If the unconditional approval decisions are not made public, then third parties
(such as customers, suppliers or competitors of the merging parties) are not
informed in a timely manner and cannot properly exercise their rights.
National Development and Reform Commission
Enforcement profile
Within NDRC, the unit responsible for antitrust enforcement is the Price
Supervision and Anti-Monopoly Bureau (PSAMB). In 2011, the PSAMB
added 20 officials to its staff, indicating NDRC’s determination to beef up its
antitrust law enforcement capabilities. In total, the PSAMB has now around 40
staff members, although some of them deal with pricing matters unrelated to
antitrust.
With the growth of its staff, the PSAMB has moved from one division to three
divisions handling antitrust enforcement, namely Anti-Monopoly Division 1,
Anti-Monopoly Division 2, and Competition Policy and International
Cooperation Division. The allocation of responsibilities among the first two divisions is based on the type of cases handled: Anti-Monopoly Division 1 is
responsible for cases in the services area, while Anti-Monopoly Division 2
handles cases involving products.
19
MOFCOM’s Anti-Monopoly Bureau announced on 15 November 2012 that, in order to improve transparency of its work, it will disclose the related information of the cases approved unconditional on a quarterly
basis. See <http://fldj.mofcom.gov.cn/article/zcfb/201211/20121108437868.shtml> accessed 1 August 2013.
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At the end of 2008, the PSAMB authorized the price departments at the
provincial level to investigate and sanction price-related antitrust cases in their
respective administrative areas. This effectively established a two-level enforcement system at the central and provincial level.20
Since the AML came into force, NDRC issued the Anti-Price Monopoly
Regulation21 and the Regulation on the Administrative Law Enforcement
Procedure for Anti-Price Monopoly22 to implement the AML provisions in
more detail. For instance, the Regulation on the Administrative Law
Enforcement Procedure for Anti-Price Monopoly provides more information
on the leniency system, laid out in the AML in its basic terms.
Since 2008, NDRC—in cooperation with the provincial price departments—
has conducted a series of investigations against price-related anti-competitive
conduct, and adopted decisions with sanctions in a number of cases, such as
the following:
abuse of dominance through tying by salt companies, handled by the
authorities in Jiangsu and Hubei;23
collusion between rice noodle manufacturers in Nanning and Liuzhou,
handled by the price department in Guangxi province;24
price-fixing by the Fuyang Papermaking Association, handled in Zhejiang
province;25,
the Sea sand cartel case, handled by the authorities in Guangdong province;26 and
the anti-competitive practices by two pharmaceutical companies in
Shandong.27
Likely due to its relative inexperience in antitrust enforcement, during an initial
period after the AML’s entry into force, NDRC adopted many decisions under
the Price Law.
20
Li Qing, ‘The Relationship Between the Anti-Monopoly Law and the Price Law’ in Adrian Emch and
David Stallibrass (eds), China’s Anti-Monopoly Law – The First Five Years (Wolters Kluwer 2013) 80.
21
Anti-Price Monopoly Regulation [2010] NDRC Order No 7, 29 December 2010.
22
Regulations on Procedures for Enforcement of Administrative Law on Anti-Price Monopoly [2010]
NDRC Order No. 8, 29 December 2010.
23
NDRC, ‘Hubei Price Control Bureau Found Wuchang Salt Industry Branch Company Engaging in Tie-in
Sale’(15 November 2010) < http://jjs.ndrc.gov.cn/gzdt/t20101115_380421.htm> accessed 1 August 2013.
24
NDRC, ‘Some Rice Noodle Manufacturer in Nanning and Liuzhou Have Been Severely Punished for
Collusion to Drive up the Price’ (31 March 2010) <http://jjs.ndrc.gov.cn/fjgld/t20100331_338262.htm> accessed
1 August 2013.
25
NDRC, ‘Paper Manufacturing Industry Association of Zhejiang Fuyang Has Been Severely Punished for
Organizing and Conducting Price Monopoly’ (6 March 2012) <http://jjs.ndrc.gov.cn/fjgld/t20120306_465485.
htm> accessed 1 August 2013.
26
NDRC, ‘Guangdong Punished Sea Sand Price Monopoly Case to Guarantee the Smooth Proceeding of
National Important Project Construction’ (26 October 2012) <http://jjs.ndrc.gov.cn/gzdt/t20121026_510834.
htm> accessed 1 August 2013.
27
NDRC, ‘Two Pharmaceutical Companies been Severely Punished for Monopoly of the Active
Pharmaceutical Ingredients of Compound Reserpine’ (6 March 2012) <http://jjs.ndrc.gov.cn/fjgld/t20120306_
465386.htm> accessed 1 August 2013.
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Increasing focus on cases with a large impact
Over the past two years, NDRC and its offices at the provincial level have
strengthened their enforcement capabilities, and have investigated several cases
with an important impact on society such as the investigation against China
Telecom and China Unicom for alleged anti-competitive practices in the
broadband access market, the LCD panels cartel and the resale price maintenance cases against Maotai and Wuliangye, two Chinese white liquor manufacturers. These cases will be discussed in more detail below.
China Telecom/China Unicom case
On 9 November 2011, NDRC announced its investigation into the alleged
anti-competitive practices of China Telecom and China Unicom, two giant
state-owned telecommunications companies, on national TV.28
NDRC’s investigation grabbed headlines, in part because the AML states that
the fines upon companies committing an abuse of dominance are 1–10 per cent
of their annual sales revenues and, with their very substantive annual revenues,
the two telecommunications companies would potentially face very high fines.29
NDRC’s view, in essence, was that China Telecom and China Unicom used
their dominant position in the broadband access market to charge excessive
network access fees to competitors, and thereby significantly impaired competition in that market.
According to NDRC, the underlying issue was that China Telecom and China
Unicom charged different prices for access to the backbone broadband network
to different Internet service providers (ISPs), depending on whether or not the
ISPs were in competition with them. For ISPs that were not seen as competitors,
or viewed as little competitive, the access fee was 200,000–300,000/G per
month. In contrast, the access fee charged to large ISPs in competition with
the two incumbents, such as China mobile, China Railway and others, was
1 million/G per month.
Moreover, NDRC reportedly argued that the large ISPs were found to have
access to broadband backbone network only through a few limited designated
points in Beijing, Shanghai, and Guangzhou.
In addition to this element of differential treatment, the issue in this case
seems to be margin squeeze. China Telecom and China Unicom offer broadband
access services at both the wholesale and retail level—that is, they also provide
Internet services directly to final consumers. The issue NDRC reportedly found
to be problematic was that the two companies’ wholesale prices were higher than
28
CCTV Program, ‘News 30 Minutes, NDRC is Investigating the Broadband Monopoly Issues of China
Telecom and China Unicom’ 12:28 (9 November 2011) <http://video.sina.com.cn/p/tech/t/v/2011-11-09/
122861555091.html> accessed 1 Aug 2013. See also Wang Xiaoye, ‘The China Telecom and China Unicom
Case and the Future of Chinese Antitrust’ in Adrian Emch and David Stallibrass (n 20) 467–86.
29
CCTV Program, ibid.
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Five years of implementation of China’s Anti-Monopoly Law
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their retail prices, leading to a negative profit margin (if the wholesale price were
applied as a cost to the companies’ own retail services).
In December 2011, China Telecom and China Unicom reportedly put forward a ‘reform programme’ and requested NDRC to ‘suspend’ the
investigation.30
It is possible that the authority accepts the ‘commitments’ put forward by the
two companies, even though there is a debate in academia as to whether it is
appropriate to close this case with commitments31 and, from the antitrust
authorities’ point of view, this may only be the second best option from the
point of view of the antitrust authorities, due to the pressure from various sources
(such as higher officials or other governmental bodies).32
No matter what the final conclusion is, the China Telecom/China Unicom case
will remain as an important case in China’s antitrust history.
On the one hand, this is because the case is about broadband which, as a
‘platform’ for Internet services, has important social implications. On the
other hand, this is the first case in which the Chinese antitrust authorities have
confronted large and very powerful state-owned enterprises head-on for alleged
antitrust offenses.33 This has or may have an important impact on state-owned
enterprises in China.
LCD panels case
On 4 January 2013, NDRC issued its decision in the LCD panels case, where it
imposed financial penalties of RMB 353 million in total upon six LCD panel
makers from South Korea and Taiwan.34 The decision found that the six
companies held more than 50 ‘crystal meetings’ between 2001 and 2006 to
exchange sensitive information and fix prices of LCD panels including for sale
to buyers in Mainland China.
The financial penalties were comprised various parts:
compensation to Chinese color TV makers for the price overcharge, in the
amount of RMB 172 million, which took the form of a refund by the
alleged cartelists to the TV makers;
30
Caijing, ‘Peng Sen Talked on China Telecom and China Unicom Anti-Monopoly Case’ (29 March
2012)<http://money.163.com/12/0329/00/7TNLGUHG00253B0H.html> accessed 1 August 2013.
31
Wang Xiaoye, ‘Main Legal Issues in the Competition Case in China’s Broadband Access Market’ (2011)
Price Theory and Practice, Edition 12; and Jiao Haitao, The Negative Effects of the Promises in China Telecom and
China Unicom Monopoly Case, Legal Science, Edition 3 (2012).
32
Zhong Jingjing, ‘NDRC Denied Settlement of Broadband Monopoly Case, Asserting Acquisition of Crucial
Evidence’ The Beijing News, 22 November 2011.
33
Prior to the China Telecom/China Unicom case, NDRC had investigated state-owned enterprises of smaller
size and less influence, notable in the salt cases in Jiangsu and Hubei. See Adrian Emch, ‘Abuse of Dominance in
China—The First Cases’ in Wang Xiaoye (ed), Capacity Building for the Enforcement of Competition Law (Law
Press China 2012) 161–62, 165 and in particular 172.
34
NDRC, Six Overseas Companies Investigated and Punished Legally for LCD Panel Price Monopoly’ (17 January
2013) <http://jjs.ndrc.gov.cn/gzdt/t20130117_523203.htm> accessed 1 August 2013.
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confiscation of unlawful gains in the amount of RMB 36.75 million; and
a fine (in the strict sense) of RMB 144 million.
In addition to these financial sanctions, the LCD makers had to commit to
provide the Chinese TV manufacturers with high-end and new technology products, and to extend the warranty period for LCD panels from 18 to 36 months
free of charge.
As the price-fixing occurred during the period from 2001 to 2006—that is,
before the AML took effect in August 2008—NDRC prosecuted the case under
the Price Law.35 Pursuant to the Price Law, NDRC is empowered to confiscate
the unlawful gains obtained through the anti-competitive conduct and impose a
fine of up to five times the amount of the unlawful gains.36
The LCD panels decision is important in various regards. First, it shows that
price-fixing is one of the top priorities for antitrust enforcement. In particular, as
NDRC has jurisdiction over price-related anti-competitive conduct, price-fixing
cartels are certainly a strong focus for enforcement.
Second, although the LCD panels decision was adopted under the Price Law, it
illustrates—more generally—that NDRC is willing to tackle international cartels
and take an ‘effects-based’ approach to enforce antitrust rules.37
Cases against Maotai and Wuliangye
On 22 February 2013, two local NDRC offices in Guizhou and Sichuan
announced their decisions to impose fines of RMB 229 and 202 million upon
Maotai and Wuliangye, respectively. Maotai and Wuliangye are distillers of
baijiu, Chinese white liquor.
The two public announcements were very brief, in particular that issued by
NDRC’s Guizhou office. In the announcement of the Sichuan office, the
authority indicated that Wuliangye set the minimum prices that its distributors
can charge for its white liquor products sold to third parties. The resale price
maintenance (RPM) obligation was found to be inserted in the distribution
agreements, and monitoring and penalty mechanisms were set up as well. The
NDRC office found this conduct to have the effect of eliminating and restricting
competition in the market and impairing consumers’ interests in violation of the
Article 14 of the AML. In the announcement, the NDRC office also noted that
Wuliangye had a strong market position.
The announcement further indicated that Wuliangye had cooperated with the
antitrust authority in the investigation and ceased its illegal conduct in a timely
35
Price Law of the People’s Republic of China [1997] Presidential Order No 92, 29 December 1997,
art 14(1).
36
ibid art 40.
37
While the Price Law is silent on its geographic scope of application, art 2 of the AML explicitly states that
the law applies to conduct outside China’s borders if the conduct has adverse effects on competition in China.
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Five years of implementation of China’s Anti-Monopoly Law
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manner. As a result, the company received a mitigated penalty in the form of a
fine of 1 per cent of its affected sales revenues in the previous year.38
The two decisions show some deficiencies. For instance, they are not sufficiently transparent. The decision in the Wuliangye case indicated that the
company had a ‘strong market position’, but actually failed to define and analyse
the ‘relevant market’.
In spite of this, the White liquor cases have had important repercussions in the
marketplace and society, mainly due to the high amount of the fines—that is,
RMB 449 million in total is the record in China’s antitrust history.
In addition, these cases are the first where NDRC applied Article 14 of the
AML to target RPM in vertical agreements. This has stirred discussion on
whether RPM is per se illegal. Indeed, given the brevity of the public announcements and the authorities’ summary treatment of the issues, one possible
interpretation would be that RPM is illegal irrespective of the economic context
in which it is inserted. We do not believe that this is the only interpretation,
though. Indeed, the decision in the Wuliangye case expressly referred to the
‘strong market position’ of the company, and mentioned various ways of how
the RPM practice had adverse effects on competition in the marketplace. If RPM
were per se illegal, these statements/explanations by the NDRC office would not
seem necessary.
Another reason why the White liquor cases are important is because the
defendants are state-owned enterprises. The cases appear to remove any
doubts that NDRC’s antitrust officials hold the AML to be applicable to stateowned enterprises.
State Administration for Industry and Commerce
Enforcement profile
Within SAIC, the unit responsible for AML enforcement is the AntiMonopoly and Anti-Unfair Competition Enforcement Bureau. This bureau
has two divisions specifically responsible for antitrust enforcement: the AntiMonopoly Enforcement Division, and the Anti-Monopoly Law Guidance
Division.
In order to facilitate its antitrust enforcement, the SAIC has promulgated the
following regulations implementing the AML in its particular field of
jurisdiction:
Regulation on the Prohibition of Monopoly Agreement Conduct;39
38
Sichuan Provincial Development and Reform Commission, ‘Fine of RMB 202 Million Imposed upon
Wuliangye for Price Monopoly’ (22 February 2013) <http://www.scdrc.gov.cn/dir25/159074.htm> accessed 1
August 2013.
39
Regulation on the Prohibition of Monopoly Agreement Conduct [2010] SAIC Order No 53, 31 December
2010.
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Regulation on the Prohibition of Conduct Abusing a Dominant Market
Position;40
Regulation on the Prevention of Conduct Abusing Administrative Powers
to Eliminate or Restrict Competition;41
Regulation on the Procedure for the Handling of Cases Involving
Monopoly Agreements and Abuses of a Dominant Market Position;42 and
Regulation on the Procedure for the Prevention of Conduct Abusing
Administrative Powers to Eliminate or Restrict Competition.43
At present, SAIC’s ongoing key normative effort includes the drafting of a regulation on anti-monopoly enforcement in the field of intellectual property rights.
Draft versions of this regulation (in guidelines form) have been circulated for
public comment on various occasions.
Increase in enforcement actions
Since the AML came into effect, SAIC has investigated nearly 20 antitrust
cases in cooperation with its counterparts at the provincial level. The cases
include:
cartel conduct in the concrete industry in Lianyungang, Jiangsu
province;44
collusion between concrete enterprises in Jiangshan, Zhejiang;45
collusion among members of the Liaoning Provincial Cement Industry
Association;46
monopoly agreement between LPG enterprises in Taihe, Jiangxi province;47
cartel in second-hand automobile market in Anyang, Henan;48
40
Regulation on the Prohibition of Conduct Abusing a Dominant Market Position [2010] SAIC Order No
54, 31 December 2010.
41
Regulation of the Administration for Industry and Commerce on the Prevention of Conduct Abusing
Administrative Powers to Eliminate or Restrict Competition [2010] SAIC Order No 55, 31 December 2010.
42
Regulation on the Procedure for the Handling of Cases Involving Monopoly Agreements and Abuses of a
Dominant Market Position [2009] SAIC Order No 42, 5 June 2009.
43
Regulation on the Procedure for the Prevention of Conduct Abusing Administrative Powers to Eliminate or
Restrict Competition [2009] SAIC Order No 41, 5 June 2009.
44
SAIC, ‘Jiangsu Lianyungang Concrete Industry Monopoly Agreement Case’ (19 February 2013) <http://
www.saic.gov.cn/fldyfbzdjz/dxal/201302/t20130219_133370.html> accessed 1 August 2013.
45
SAIC, ‘Zhejiang Jiangshan Concrete Enterprises Monopoly Case’ (19 February 2013) <http://www.saic.
gov.cn/fldyfbzdjz/dxal/201302/t20130219_133367.html> accessed 1 August 2013.
46
SAIC, ‘The Case of An Industrial Association in Liaoning Been Found Organising More than Ten Member
Enterprises to Operate Monopoly’ (19 February 2013) <http://www.saic.gov.cn/fldyfbzdjz/dxal/201302/
t20130219_133368.html> accessed 1 August 2013.
47
SAIC, ‘Jiangxi Taihe Liquefied Petroleum Gas Enterprise Monopoly Agreement Case’ (19 February 2013)
<http://www.saic.gov.cn/fldyfbzdjz/dxal/201302/t20130219_133369.html> accessed 1 August 2013.
48
SAIC, Safeguarding Equality-Record of the Investigation and Punishment of the First Second-hand Automobile
Monopoly Case in China by Henan AIC Agencies, 30 August 2012 <http://www.saic.gov.cn/fldyfbzdjz/dxal/201211/
t20121120_131126.html> accessed 1 August 2013.
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anti-competitive practices for new car insurance in Loudi, Henan province;49 etc.
The Pre-mixed concrete cartel in Lianyungang was the first AML investigation
case concluded by SAIC and its local bureaus. The sanctions imposed were
the confiscation of unlawful gains of RMB 140,000 and a fine of RMB
730,000.
Most of the cases mentioned above involve anti-competitive conduct within
the framework of industry associations. For instance, in the Pre-mixed concrete
cartel case, the Concrete Committee of Lianyungang’s Construction Material
and Machinery Industry Association formulated ‘self-discipline rules’ for premixed concrete manufacturers, which allocated specific markets/market shares to
association member and provided that prices would be determined jointly. In
order to implement the ‘self-discipline rules’, the association also issued rules on
inspection and penalties, and sanctioned members that did not comply with the
association’s rules.
SAIC’s cases show that, oftentimes, industry associations—as organizations
which defend the interests of the entire industry—restrict competition and
impair the market structure through price-fixing or coordination, quantity
limits or market partitioning.
Against this background, it may have been a wise move to include specific
provisions in the AML, targeting the conduct of industry associations.50
Industry associations should increase their awareness of antitrust laws and
avoid restricting competition by way of calling for ‘self-discipline’ among
members.
Courts
Enforcement profile
Since the AML came into force in 2008 until the end of 2012, the courts accepted
116 civil cases at first instance and completed the procedure for 102 of them. In
2012 alone, 55 antitrust cases were filed and 49 were concluded. These figures
show that private antitrust litigation has become an important way to enforce the
AML.
The dual-track enforcement system—through administrative antitrust authorities and the courts—is a positive aspect of the AML regime. In that way, there is
competition in antitrust enforcement, which not only helps increasing the profile
of the AML but private litigation can also alleviate the human resource shortage
in the administrative authorities.
49
SAIC, ‘Hunan AIC Investigating into Newly-Purchased Automobile Insurance Monopoly Case’ (6 June
2012) <http://www.saic.gov.cn/fldyfbzdjz/dxal/201211/t20121120_131122.html> accessed 1 August 2013.
50
Adrian Emch and Andy Huang, ‘Between Business and Government – The Addressees of Obligations
Under the Anti-Monopoly Law’ in Adrian Emch and David Stallibrass (n 20) 246–7.
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Cases filed and challenges
So far, the courts have handled several antitrust cases that made big headlines in
the press: Renren v Baidu,51 Zhou Zhe v China Mobile,52 Sursen v Shanda,53
Rainbow v Johnson & Johnson,54 Qihoo 360 v Tencent,55 and so on.56
However, except for a few cases like the Shaanxi digital TV case57 and
Huawei v InterDigital,58 most plaintiffs in private antitrust cases have been
unsuccessful so far.
Many observers remark that an important reason why most plaintiffs have lost
their private lawsuits is that the burden of proof placed on the plaintiffs is too
high.59 Other observers argue that there are other important factors for plaintiffs’
low success rate, in particular the deficient preparation of the cases.60 In any
event, in May 2012, the Supreme People’s Court issued the Provisions on
Several Issues Concerning the Application of Law in the Trial of Civil Dispute
Cases Arising from Monopolistic Conduct (‘Judicial Interpretation’),61 which in
part lowers the burden of proof for plaintiffs.
The Judicial Interpretation defines the jurisdiction of courts and the parties’
respective burden of proof including certain stipulations which basically work as
presumptions. As such, under Article 9 of the Judicial Interpretation, a court
may ‘determine’—in light of the market structure and the market conditions—
that a public utility or another entity with a statutory monopoly has a dominant
market position, absent evidence to the contrary. Under Article 10, the information released by a defendant—for example, on its website or annual report—
51
People’s Daily, First Anti-Monopoly Case Adjudicated in First Instance, Tangshan Renren’s Action Against
Baidu Rejected <http://finance.qq.com/a/20091219/001806.htm> accessed 1 August 2013.
52
Sina Blog of Zhou Zhe, ‘Plaintiff and Defendant Reached Settlement in Monopoly Case against China
Mobile’(25 October 2009) <http://blog.sina.com.cn/s/blog_4bdb1fa00100g27j.html> accessed 1 August 2013.
53
Baidu Wenku, ‘Case on Abuse of Dominant Market Position, Beijing Sursen Electronic Technology Co.,
Ltd. vs. Shengda Network Development Co., Ltd’ <http://wenku.baidu.com/view/622668e0b8f67c1cfad6b8d3.
html> accessed 1 August 2013.
54
Xinhua, ‘National First Vertical Monopoly Case, Rainbow vs. Johnson & Johnson, Adjudicated in First
Instance’ (2 July 2012) <http://www.tj.xinhuanet.com/web/qypd/2012-07/02/content_25456660.htm> accessed 1
August 2013.
55
China Economic Net, ‘Qihoo 360 Loses First Network Monopoly Case’ (29 March 2013) <http://news.
xinhuanet.com/yzyd/fortune/20130329/c_115213140.htm> accessed 1 August 2013.
56
Sina Blog of Zhou Zhe, ‘Plaintiff and Defendant Reached Settlement in Monopoly Case Against China
Mobile’ (25 October 2009) <http://blog.sina.com.cn/s/blog_4bdb1fa00100g27j.htm> accessed 1 August 2013.
57
To the best of our knowledge, the judgment of the Xi’an Intermediate People’s Court has not been publicly
released in its entirety. However, an article by Yao Jianjun, judge at the same court, provides some insights into
the case. See Yao Jianjun, ‘The Attributes and Constitutive Elements of Bundling Trading Conduct’ <http://
rmfyb.chinacourt.org/paper/html/2013-02/28/content_58680.htm> accessed 1 August 2013.
58
Shenzhen Intermediate People’s Court, Huawei Technologies Co. Ltd. v InterDigital Technology Corporation,
InterDigital Communications, LLC and InterDigitial Corporation [2011] Shen Zhong Fa Zhi Min Chu Zi No 858.
59
Sun Weichen, ‘No Success for Plaintiffs in Anti-monopoly Civil [litigation] at First Instance in Three Years
in China, 22 May 2012 <http://news.sina.com.cn/c/sd/2012-05-22/154824458467.shtml> accessed 1 August
2013.
60
Adrian Emch and Jonathan Liang, ‘Private Antitrust Litigation in China—The Burden of Proof and Its
Challenges’ CPI Antitrust Chronicle, 16 April 2013.
61
Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial
of Civil Dispute Cases Arising from Monopolistic Conduct [2012] Fa Shi No 5, 3 May 2012.
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may be used as evidence that the defendant has a dominant market position,
unless proven otherwise.
Qihoo 360 v Tencent case
On 28 March 2013, the Guangdong High People’s Court issued its judgment
in the Qihoo v Tencent case.62 Many observers believe this case is the private antitrust case that has had the widest impact so far, in terms of public
opinion.
The main reason leading Qihoo 360 to bring a court action was that Tencent
allegedly forced users to choose just one of the two companies’ security software.
Qihoo 360 argued that Tencent’s behaviour impaired market competition and
constituted an abuse of dominance. It requested the court to order the defendant
to stop the anti-competitive conduct, compensate for damages over RMB 150
million, and issue a public apology in the media.
In its judgment, the Guangdong court ruled inter alia that the plaintiff’s
definition of the relevant market was wrong and that its evidence was insufficient
to prove that the defendant had a dominant position in the relevant market.
In fact, the court went even further and held that Tencent did not have a dominant position. As a result, the court rejected the plaintiff’s pleas for lack of
factual and legal basis.
The judgment by the Guangdong High People’s Court may not be the last
word spoken in this case, and Qihoo 360 is reported to have appealed the judgment to the Supreme People’s Court. Some observers criticized particular elements of the judgment, questioning, for example, whether the relevant product
and geographic market had been defined too broadly.63
Nonetheless, the judgment will definitely have an important impact in the
track-record of antitrust enforcement in China, for a variety of reasons. First,
defendant Tencent is a company with more than 800 million users, and plaintiff
Qihoo 360 has over 400 million users; hence, this case truly pitched two key
players of China’s Internet space against each other.
Second and more importantly, the Guangdong High People’s Court
conducted an economic analysis in some depth, including on key aspects
such as market definition and dominance. When defining the relevant market, the court specifically adopted the hypothetical monopolist test (also referred
to as SSNIP), and applied the method to a special industry—the Internet—
where many products are offered for free. In addition, the court also heard
expert witnesses—for Qihoo 360, in fact, a foreign expert—testifying at the
hearing.
62
Guandong High People’s Court, Beijing Qihoo Technology Co. Ltd. v Tencent Technology (Shenzhen) Co. Ltd.
and Shenzhen Tencent Calculation Systems Co. Ltd., 20 March 2013 [2011] Yue Gao Fa Min Chu Zi No 2.
63
Wei Shilin, ‘Legal Analysis of the Abuse of Dominance Lawsuit by Qihoo Against Tencent’ (3 April 2013)
<http://blog.sina.com.cn/s/blog_5a81db8501015ceq.html> accessed 1 August 2013.
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III. Challenges in enforcement during the first five years
As noted, in the first five years of enforcement of the AML, there have been some
remarkable achievements. However, despite of these achievements, the AML is
as a relatively new legal system and China’s economic system is still in transition.
Not surprisingly, it seems unavoidable that AML enforcement also faces some
problems. In turn, the enforcement authorities face significant challenges.
Insufficient mechanisms against administrative monopoly
On 1 August 2008—the same day that the AML came into effect—four
anti-counterfeit enterprises filed a lawsuit to the Intermediate People’s Court
in Beijing, accusing the General Administration of Quality Supervision,
Inspection and Quarantine of imposing the use of a specific electronic code
developed by a particular company. The plaintiffs requested the court to determine that this conduct constituted anti-competitive abuse administrative powers,
prohibited by the AML. One month after the plaintiffs filed their brief, the court
dismissed the case on the grounds that the statute of limitations had expired.64
This outcome is somewhat surprising, as the facts at hand might have allowed
the court to conclude that the statute of limitations had not yet expired.65 Hence,
to an extent, this case sent out a signal that it is difficult for courts to hear and
adjudicate administrative monopoly cases.
The jurisdiction of the competent administrative antitrust authorities—that is,
NDRC and SAIC—is not far-reaching, as far as administrative monopoly conduct is concerned. Indeed, Article 51 of the AML confers powers to tackle such
conduct to the ‘superior authority’ of the perpetrating body by ordering the latter
to stop the conduct.
In our view, in many cases, it may not be sufficient that the AML only
authorizes the superior authorities of the institutions violating the law to deal
with abuses of administrative powers.66 First, many such abuses involve discrimination between market players, which is frequently motivated by protection of a
particular (often local) enterprise. With these motives, it is difficult if not impossible for the superior authorities to keep neutral in dealing with disputes
involving their subordinate departments. Second, the superior authorities are
usually not specialized antitrust agencies, and their staff generally do not have
a strong sense of antitrust law.
64
Xinhua, ‘Court Does Not Accept Anti-Monopoly Case Lodged by Four Anti-Counterfeit Enterprises
Against AQSIQ’ (5 September 2008) <http://news.xinhuanet.com/legal/2008-09/05/content_9773194.htm> accessed 1 August 2013.
65
Wang Xiaoye and Adrian Emch, ‘Enforcement under China’s Anti-Monopoly Law: So Far, So Good?’ in
Nicolas Charbit and others (eds), William E. Kovacic; An Antitrust Tribute Liber Amicorum, vol. 1 (Concurrences
2012), 380.
66
Xu Shiying and Zhang Baisha, ‘Judicial and Administrative Remedies Against Administrative Monopoly:
Cases and Analysis’ in Adrian Emch and David Stallibrass (n 20) 284–5.
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Five years of implementation of China’s Anti-Monopoly Law
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Of course, antitrust law alone is not sufficient to tackle administrative monopolies. The elimination of administrative monopolies also requires the deepening
of economic reforms, including a change to inappropriate state monopolies. In
addition, society’s awareness of competition and the understanding by companies (including state-owned enterprises) of competition policies must be
improved. Administrative monopolies should be on the policy agenda, as
China hopefully moves further in its market-oriented economic reforms. With
respect to the relationship between the government and the market, the state
should let the market allocate resources, rather than building upon the government’s direct control over the economy to endow the government with dual roles
as player and referee.
An environment where administrative monopolies are still prevalent and where
the state-owned enterprises can seek ‘protection’ from the government and
engage in rent-seeking makes it difficult, if not impossible, for the AML to be
effectively implemented.
Insufficient independence for antitrust enforcement
Independent enforcement means that the antitrust authorities should be able to
enforce the AML without interference from other governmental departments.
The antitrust authorities must be independent, as their cases can have an
important impact on the market and society more generally. If enforcement officials are not granted sufficient independence and authority, then there is
undoubtedly a chance that they will be influenced by their superior governmental
departments or other governmental departments.
During the first five years of AML enforcement, practice has already shown
that, in some cases involving large state-owned enterprises, antitrust officials are
not able to fully maintain their independence. The China Telecom/China Unicom
is a telling example. There was no ‘deliverable’ outcome after NDRC’s investigation. It is distinctively possible that other government players interfered with
the antitrust enforcement activities in that case.
There are other examples. For instance, although their sales revenues clearly
exceeded the thresholds,67 China Telecom and China Unicom did not submit a
notification to MOFCOM for their combination back in 2008 (the deal was
completed after the AML took effect).68 Reports indicate that there have been
other M&A transactions involving enterprises owned by the state government
that were not filed with MOFCOM in accordance with the AML.69 In addition,
there are indications that some potentially anti-competitive conduct involving
67
State Council Regulation on the Notification Thresholds for Concentrations Between Business Operators
[2008] State Council Order No 529, 3 August 2008.
68
Wang Biqiang, ‘Official with MOFCOM confirms that merger of China Unicom and China Netcom is
Alleged Illegal’ The Economic Observer, 30 April 2009.
69
Wang and Emch (n 65) 381.
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large state-owned enterprises was not sufficiently investigated, and the TravelSky
case may be an example.70
Against this background, it is clear that, in China, it is impossible to establish an antitrust enforcement authority that is entirely independent of any
other governmental department. However, this does not mean that it is impossible to increase the level of independence of the antitrust officials in the
country.
We believe that one of the most important measures that could be taken is to
combine the three antitrust authorities into a single authority.71
Three enforcement agencies may have a higher cost (in terms of disynergies)
and efficiency may be lower. At the same time, inconsistencies or even conflicts
between these agencies seem inevitable. For example, when a given conduct
involves price and non-price elements, there is the potential for conflict between
NDRC and SAIC jurisdiction.
An important weakness of the three antitrust authorities is that they are
inserted within larger ministries or commissions under the State Council. In
other words, their level in the Chinese institutional hierarchy is not high
enough for enforcing the AML in an entirely independent and ‘neutral’
manner. In reality, the antitrust officials at MOFCOM, NDRC, and SAIC are
part of larger organizations whose functions include the formulation and implementation of macroeconomic and other policies. Against this background, the
State Council should act and combine the three authorities into a single antitrust
authority without delay.72
Insufficient resources for antitrust enforcement
A law, no matter how perfect it is, is only good if it is efficiently implemented
and, for this, sufficient law enforcement resources are needed.
To a large degree, the efficiency of an antitrust authority depends on its
resources, in particular those that can be dedicated to enforcement activities.
For this reason, the state should allocate appropriate manpower and funds for
antitrust enforcement. In China, antitrust enforcement requires considerable
resources, because the AML is applicable to basically all sectors and enterprises
and—of course—China is a vast country with a large market. In theory, the
resources for antitrust enforcement in China should not be less than those of
antitrust agencies in any other jurisdictions.
However, in practice, this is not the case. In China, the human and financial
resources for antitrust enforcement are greatly inadequate. As the figures on the
70
Wang Xiaoye, ‘Comparative Overview – China’ in Adrian Emch, Jose Regazzini and Vassily Rudomino
(eds), Competition Law in the BRICS Countries (Wolters Kluwer 2012) 266.
71
Wang Xiaoye, ‘Several Issues Regarding Anti-Monopoly Law Enforcement Agencies in China’, Dongyue
Tribune, 2007 (1).
72
Wang and Emch (n 65) 384.
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Five years of implementation of China’s Anti-Monopoly Law
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financial budget from the government are not publicly available, we can only
illustrate the insufficiency of resources with the example of manpower.
At present, among the antitrust enforcement agencies in China, MOFCOM’s
Anti-Monopoly Bureau has the largest workforce, with over 30 staff members.
However, bearing in mind that the bureau receives around 200 or more notifications a year, it is obvious that the bureau’s workload and pressure is high. In
turn, SAIC’s Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau
has even fewer human resources, with less than 10 staff members. Within
NDRC, the Price Supervision and Anti-Monopoly Bureau increased its staff
by 20 additional employees in 2011 to around 40 staff members in total today
(although not all of them work on antitrust cases). This represents a notable
increase as compared to the past. However, considering the potential impact that
price-related anti-competitive practices can have and China’s vast market,
NDRC’s enforcement resources are still far from sufficient.
This lack of sufficient resources is felt throughout. For instance, due to severe
understaffing at MOFCOM, a large number of merger cases enter phase 2 of the
review process, although many of them should be cleared in phase 1. Moreover,
while NDRC and SAIC have entrusted government departments at the
provincial level to assist in antitrust enforcement pursuant to Article 10 of the
AML, the powers of these departments are limited. In principle, they can only
investigate and sanction cases within their own jurisdiction, and oftentimes need
instructions from the antitrust officials at the central government level.
Therefore, the participation of provincial government officials in the handling
of antitrust cases cannot help to completely solve the manpower bottleneck at the
level of the central government.
Need to enhance the normative framework
The normative framework centred around the AML has shown inadequacies in
the five years since the law’s entry into force. For example, although the merger
control provisions in the AML focus on the criterion of an acquisition of a
‘controlling right’, there is no guidance whatsoever in the AML or its implementing rules on what a controlling right is.
Similarly, one of the factors MOFCOM needs to consider in its merger review
is the transaction’s impact on the ‘development of the national economy’, but
this is a very broad concept. Hence, the lack of detailed guidance may lead to
widespread concerns that this concept could give ‘green light’ to M&A between
large state-owned enterprises without much of a proper antitrust review.
Therefore, it is necessary for legislators to provide further guidance on the concept of ‘development of the national economy’.
There are also some ambiguities as to how to interpret the AML’s provisions
on monopoly agreements and abuse of dominance. In the White liquor cases for
example, through its local offices in Sichuan and Guizhou, NDRC held the
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conduct by the two liquor companies to amount to illegal monopoly agreements.
As noted, NDRC objected to the inclusion of clause where the two companies
fixed the minimum resale prices for their distributors. The authority found
Article 14—the AML’s only provision on vertical agreements—to be infringed.
In contrast, in the Rainbow v Johnson & Johnson case,73 although the Shanghai
Intermediate People’s Court found the sales contract between the plaintiff and
the defendant to contain a minimum resale price clause, it required the plaintiff
to produce evidence to prove the actual anti-competitive effects of that clause. In
the case at hand, the Shanghai court held that the plaintiff had not succeeded in
providing sufficient evidence, and hence dismissed the action. These two cases
reveal that NDRC and the Shanghai Intermediate People’s Court interpret
Article 14 of the AML differently. This in turn indicates that more detailed
guidance on the various AML provisions would be a welcome development.
Moreover, ‘commitments’ are another area where the antirust community
would benefit from further certainty through additional normative efforts. For
instance, the China Telecom/China Unicom case is likely to be resolved through
commitments, under Article 45 of the AML. If under that provision NDRC were
to accept the commitments put forward by the two telecommunications companies, it would in principle be precluded from holding that the companies violated
the law or sanctioning them through fines or other penalties. Given the importance of a commitments decision, it would be highly beneficial for the law to
provide more guidance, both on substance and procedure.
As such, the assessment of the antitrust authorities of a commitments proposal
should be laid out in more detail—for example, further rules could make clear
that the authority needs to examine whether the benefits of putting to an end the
potentially illegal conduct by way of commitments—such as saving the time and
cost of a lengthy investigation—are greater than those of completing the full
procedure, potentially with an infringement decision. The benefits of a decision
on the substance could be manifold, such as upholding justice, condemning and
sanctioning violations of the law, instilling deterrence, and so on.
‘Legal liability’ is another area where further clarity on the scope of the AML
rules would be welcome. According to Articles 46 and 47 of the AML, a company entering into a monopoly agreement or committing an abuse of dominance
may be subject to a fine between 1 and 10 per cent of its sales revenues in the
preceding year. The minimum fine is 1 per cent of sales revenues, which appears
to significantly constrain the room for manoeuvre of the antitrust authorities. If
interpreted literally, the antitrust authorities would be precluded from imposing
lower fines, which diverges from EU practice for example.74 Moreover, the ‘sales
73
Shanghai Intermediate People’s Court No.1, Bangrui Yonghe Technology Trading Co., Ltd. v Johnson &
Johnson (Shanghai) Medical Equipment Co., Ltd. and Johnson & Johnson Medical (China) Ltd., 18 May 2012
[2010] Hu Yi Zhong Min Wu (Zhi) Chu Zi No 169.
74
Adrian Emch and Qian Hao, ‘The New Chinese Anti-Monopoly Law – An Overview’ [2007] Global
Competition Policy Magazine 14–15.
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revenues’ concept is not clear either, in particular as to whether it refers to the
revenues generated globally or in China, or those generated in the relevant
market pertaining to the case.
IV. Conclusions
During the first five years of implementation of the AML, the antitrust authorities and courts have made considerable progress on many aspects of their work.
In the merger control field in particular, MOFCOM has quickly established itself
as an influential antitrust regulator, with a reputation beyond China’s borders. In
turn, its investigation against China Telecom and China Unicom has greatly
enhanced NDRC’s status as an antitrust authority, as the investigation made
people realize that the AML also applies to powerful state-owned enterprises.
At the same time, some of the cases adjudicated in the past five years—including the China Telecom/China Unicom case—also reveal that the implementation
and enforcement of the AML face considerable challenges, and errors did, and
do, occur.
The report for the 18th Congress of the Chinese Communist Party proposed
that China should ‘leverage to a greater extent and in a wider scope the basic role
of the market in allocating resources’. This would seem to require the state to
vigorously promote competition policy, in order to create a sound environment
for private enterprises to compete with each other. From a more high-level perspective, the state should strive to deepen economic reforms, and in particular
provide clarity on the relationship between the government and the market. Only
when the government plays a ‘neutral’ role in the marketplace—directly participating in the market, at most, to provide ‘public services’—and the AML is
equally applied to all enterprises in the market, can the law become a rule that
truly protects competition in the marketplace. But even on a more practical and
short-term level, support to beef up resources for antitrust enforcement—such as
an increase of manpower, funds and organizational support for antitrust officials—is needed.
For China as a country in a rapid pace of development, it is important not to
lose the growth momentum. Anti-competitive practices—whether by market
players or government bodies—can distort competition in the marketplace
and—more generally—hold back economic development. Therefore, it is
important for China to improve its competition policy, and deepen its marketoriented economic reforms more generally. One way to make a big step forward—without the need for many additional resources—would be to set up a
single independent antitrust authority. This would lead to cost savings and allow
the authority to tackle anti-competitive issues in a more efficient and independent manner. We hope that we can see such authority emerge before another five
years of antitrust enforcement have passed.