On 1 August 2022, the Amendment to the Anti-Monopoly Law (the “AML Amendment”) came into effect. This is the first significant revision to the Anti-Monopoly Law since its introduction in 2008, and the AML Amendment marks a major milestone in the evolution of China’s competition law regime. It will have a great impact on competition enforcement in China.
Overview of anti-competitive conduct investigations
In 2022, the State Administration for Market Regulation (SAMR) released a total of 24 administrative penalty decisions – 11 related to horizontal agreements, five related to vertical restraints, and nine related to abuse of dominance. Among these, in eight cases undertakings had illegal income confiscated, and in two cases the fine was up to 5% of the previous year’s turnover.
In 2022, China’s competition authorities continued to focus on crucial sectors affecting public welfare, such as public utilities and pharmaceuticals. Public utility companies, such as local water or natural gas suppliers, were penalised for abusing market dominance by means of exclusive dealing, tying or bundling. Pharmaceutical and healthcare companies were penalised for engaging in resale price maintenance (RPM) involving medical devices and application programming interfaces (APIs). Building material industries, driver training businesses and academic database services were also investigated and fined in 2022.
Overview of merger control cases
In 2022, the SAMR published 34 gun-jumping cases and concluded a total of 794 merger control cases, among which 789 were approved unconditionally and five were approved with remedies. Of the conditionally approved cases, three were related to the semi-conductor and high-tech industries, and the other two were related to the airline industry. The SAMR imposed both structural and behavioural remedies, in line with its stringent scrutiny over sectors of strategic importance.
Delegated Review Pilot Programme
The SAMR launched a three-year pilot programme on 1 August 2022 to delegate certain simplified procedure cases to five provincial-level branches. The delegated review system is expected to relieve the pressure on the SAMR so that it can allocate more resources to complicated cases in industries with greater significance. By the end of 2022, companies located in Guangdong, Chongqing and Shaanxi would have seen pop-up reminders of merger filing when they registered equity transfer and/or joint venture transactions, with a view to promoting the compliance of merger control filing requirements. Such an approach may be extended to more provinces and local level cities. It is not anticipated that such pop-up reminders will become a pre-requisite to all company registration matters as they will create difficulties for such transactions without triggering merger filings.
Trends and forecasts
With the amendment of the AML implementing regulations, it is expected that public enforcement will have clearer guidance once these regulations are promulgated. Businesses such as public utilities, the digital economy, pharmaceuticals and those with a significant impact on public welfare should be aware of compliance risks when formulating strategic decisions.
In 2022, disputes arising from cartels, RPM and abuse of dominance cases increased. The Supreme People’s Court (SPC) released six decisions involving cartels and three decisions involving RPM. Many abuse-of-dominance cases in the internet sector are still on trial and the outcome of these cases is awaited with interest. It is also noteworthy that many disputes in 2022 were related to intellectual property rights.
What was revealed in typical cases
Crackdowns on monopolistic behaviour
In the Driver Training Cartel Case, the SPC ruled that an agreement based on a cartel could be voided with clarification of the detailed test. In the Concrete Cartel Case, the SPC explained two factors (ie, consistent market behaviour and information exchange) to prove the existence of “other concerted practices”. In the Weihai Water Group Abuse of Dominance Case, the SPC pointed out that exclusive dealing could be implied and indirect. These cases have refined the ruling approaches for the private enforcement sector.
“The SPC paid close attention to monopolistic disputes in fields related to public welfare… with a view to promoting the people’s right to enjoy… fair and adequate market competition.”
Focus on the sectors affecting public welfare
The SPC paid close attention to monopolistic disputes in fields related to public welfare, such as water supply, vehicle testing and preschool education, with a view to promoting the people’s right to enjoy the benefits and convenience brought about by fair and adequate market competition.
Active promotion of alignment in administrative enforcement and judicial practice
In two cases against the government, the SPC clarified the interpretation of the “previous year” and “turnover” in calculating a fine (the previous year’s turnover) and indicated the main considerations in determining the amount of a fine. These cases filled the gap in the relevant concepts in public enforcement and improved the convergence between antitrust public enforcement and judicial practice.
Trends and forecasts
With the clarification of the rules, it is expected that the determination of more complex and new types of monopolistic behaviours will gradually become the focus of judicial practice. In November 2022, the SPC released a draft interpretation for public consultation, setting out much more detailed and comprehensive rules on both procedural and substantive aspects. With the improvement and refinement of the applicable rules, the Chinese courts’ evolving interpretation of the AML will serve as valuable guidance for businesses seeking to balance their anti-monopoly compliance and their commercial needs.
The year 2022 was the start of a new era in China’s antitrust enforcement with the release of the AML Amendment. The Chinese anti-monopoly regime has matured rapidly since it was first realised in 2008, and the SAMR and its local counterparts are getting ready to crack down on more complex and covert monopolistic behaviour such as hub-and-spoke agreements. Challenges are expected to arise for enforcement agencies and enterprises.
The original article is published on the Chambers Expert Focus website (https://chambers.com/legal-trends/chinas-recent-antitrust-law-enforcement)
For further information, please contact:
GONG, Mingfang, Partner, JunHe