Exploration

Lexology GTDT - Cartel Regulation 2021 - China

2020-11-10


LEGISLATION AND INSTITUTIONS

Relevant legislation

1 What is the relevant legislation?

The Anti-Monopoly Law of China (AML) of 2008 is the main legislation in China governing cartels. In addition, the State Administration for Market Regulation (SAMR), the consolidated anti-monopoly enforcement agency, issued the Interim Provisions on the Prohibition of Monopoly Agreements in 2019, which provides more detailed rules to regulate cartel arrangements.

In January 2019, the Anti-monopoly Committee of the State Council (AMC) issued the Guidelines for the Application of the Leniency Program to Cases Involving Horizontal Monopoly Agreements (the Leniency Guidelines). The Leniency Guidelines was published in June 2020 and provides more detailed provisions to regulate cartels and leniency.


Relevant institutions

2 Which authority investigates cartel matters? Is there a separate prosecution authority? Are cartel matters adjudicated or determined by the enforcement agency, a separate tribunal or the courts?

SAMR and the Provincial Market Regulatory Department (PMRD) – the market regulatory departments of the governments of provinces, autonomous regions and municipalities directly under the Central Government – are the competition authorities in China and investigate cartel arrangements.

Many cartel investigations are conducted by either SAMR or PMRD. SAMR may assign certain cartel cases to PMRD if the target companies are located in one province. For these assigned cartel cases, SAMR may accompany PMRD to carry out on-site dawn raids and PMRD will report to SAMR from time to time regarding the development of the investigation. If PMRD finds no cartel behaviour, SAMR may accept this conclusion. However, if SAMR does not agree with the approach of the PMRD, it may rule on the matter as if it has not assigned the case to the PMRD.

According to the AML, the AMC was established to organise, coordinate and supervise anti-monopoly activities. The AMC serves as a policy-making body and is not involved in the specific anti-trust cases.

Cartel agreements are not criminal violations in China. Therefore, except for bid-rigging or obstructing law enforcement by means of violence or threats, the role of the criminal prosecution authorities is very limited in a cartel investigation in China.

Under the AML, SAMR and PMRD conducts anti-trust investigations against cartel arrangements and renders decisions independently, without relying on the People's Court.


Changes

3 Have there been any recent changes, or proposals for change, to the regime?


Draft AML amendment

SAMR solicited public comments on a Draft of Amendments to the AML (the Draft AML) in January 2020. The Draft AML is still subject to consultation and further review by China's administrative and legislative bodies. While there is no fixed timetable for formal adoption, the Draft AML could be passed by the National People's Congress as early as 2021 if the remaining process runs smoothly.

The Draft AML proposes increasing fines for cartel arrangements and changes to the AML to allow for 'hub and spoke' arrangements to be investigated and dealt with.


Increasing fines against cartel arrangements

The Draft AML proposes the following:

• a new fine applied to undertakings found to be organising or facilitating others to reach cartel agreements of 10 per cent of its revenue for the preceding year;

• the fine for trade associations organising or facilitating others to reach cartel agreements to be increased from 500,000 yuan to 5 million yuan;

• the fine for agreeing to a cartel arrangement that is not yet implemented to be increased from 500,000 yuan to 50 million yuan; and

• a new fine applied to undertakings that agree to a cartel arrangement, but have no revenue for the previous year of 50 million yuan.


In practice, 'preceding year' refers to the fiscal year before an investigation is launched. A fiscal year spans from 1 January to 31 December based on the Gregorian calendar. Where an undertaking adopts a different fiscal year system, adjustments shall be made accordingly.


Hub & spoke collusion

In a hub and spoke collusion, the common supplier is the 'hub', while the distributors are the 'spokes'. The hub facilitates the coordination of competition between the spokes and there is no direct contact between the spokes. In this way, a cartel can be achieved based on indirect communication between the cartel's horizontally aligned members.

The AML in its current form is unable to deal with such an arrangement, as it only applies to competing undertakings and lacks relevant provisions to deal with an undertaking that is not a competitor to a cartel's parties but plays an important role in it. The Draft AML proposes extending the scope of investigations and penalties for monopoly agreements to include undertakings that organise or facilitate other undertakings to reach cartel agreements.


New anti-trust guidelines

In June 2020, a book titled the Collection of Antitrust Regulations and Guidelines 2019, authored by the Anti-Monopoly Bureau of SAMR, was published by China Industry and Commerce Press. This book officially made public the following guidelines into anti-trust investigations:

• Antitrust Guidelines for the Automotive Industry (the Auto Guidelines);

• Leniency Guidelines;

• Guidelines on the Undertakings' Commitments in Anti-trust Cases (the Commitments Guidelines); and

• Antitrust Guidelines for Intellectual Property Rights (IP Guidelines). Each of these guidelines introduced new cartel rules, which are detailed as follows.


Auto Guidelines

The Auto Guidelines is focused on vertical arrangements. They apply on cartel issues when the following exemptions apply.

The Auto Guidelines identified the following five types of horizontal agreements that would generally improve the efficiency and promote competition, and are conducive to increasing the benefits of the consumers. These agreements are likely to be exempted from the application of the cartel rules under the AML:

• research & development agreements;

• agreements on specialisation;

• technology standardisation agreements;

• joint production agreements; and

• joint purchasing agreements.


The Auto Guidelines provide that:

[For] instance, the horizontal agreements during the R&D and production processes of the new energy automobile may enable the undertakings to share the investment risks, improve the efficiency and promote social public interests.


Leniency Guidelines

The key elements of the Leniency Guidelines are:

• a leniency application should be followed with a report and material evidence meeting criteria specified in the Leniency Guidelines;

• a marker system allows a first-in undertaking to hold its place for 30 days (extendable to 60 days in exceptional circumstances) in order to provide supplementary material evidence required by SAMR or PMRD; and

• the following mitigations are applied to the sanctions of successful leniency applicants:

• the first-in may receive immunity or a reduction in its fine of at least 80 per cent;

• the second-in may receive a 30 per cent to 50 per cent reduction in its fine;

• the third-in may receive a 20 per cent to 30 per cent reduction in its fine; and

• subsequent applicants may receive no more than a 20 percent reduction in their fines.


Commitments Guidelines

According to the Commitments Guidelines, the following forms of anti-trust agreements cannot be settled by commitments from undertakings: price-fixing, restricting production or sales volume, and market or customer allocation.

In addition, if SAMR or PMRD identifies and verifies the cartel agreement after an investigation, it will no longer accept proposed commitments and it will not settle the investigation.


IP Guidelines

The IP Guidelines provides a safe harbour for the following IP-related horizontal agreements:

• the cartel arrangements other than price-fixing, restricting production or sales volume, market or customer allocation, restricting R&D or new technology/products, and group boycotts; and

• the cartel's combined market share does not exceed 20 percent, or there are at least four other competing technologies available in the market.


Although the anti-trust guidelines were issued internally by the AMC on 4 January 2019, they were not released to the public nor invoked in an anti-trust investigation. This was the first time important anti-trust guidelines were published in a book publication rather than official websites. The grounds for this unusual approach are not known.

After publishing these substantive guidelines in June, SAMR provided grace periods to allow undertakings to adjust their practices.


Substantive law

4 What is the substantive law on cartels in the jurisdiction?


The AML and the Interim Provisions on the Prohibition of Monopoly Agreements prohibit:

• price-fixing;

• restricting production or sales volume, market or customer allocation, research and development or new technologies, or products; and

• group boycotts.


Price-fixing

Price-fixing is an agreement, either written, verbal or inferred from conduct, among competitors that increases, lowers or stabilises prices or competitive terms.

Price-fixing can be achieved directly by setting the price level, range, or discount. It can also be achieved indirectly by setting the profit, fees and expenses or a standard formula for calculating prices. The nature of the price-fixing is to limit the discretion of the parties on pricing, rather than allowing the price to be determined naturally through free-market forces.


Market or customer allocation

Market or customer allocation is an agreement among competitors to divide sales territories or assign customers. In practice, the market allocation can be further divided as geographic market allocation, product-market allocation and market share allocation.

• geographic market allocation – undertakings assign exclusive territories for each cartel member (online and offline markets could also be so allocated);

• product market allocation – undertakings allocate the exclusive rights on certain categories, volume and timing of sales of products to each cartel member;

• market share allocation – undertakings' similar products compete in the same territory, however, when one cartel member reaches an agreed market share, sales target, sales revenue or sales profit, it restricts its sales activities and ceases to compete; and

• customer allocation – customers are allocated among the undertakings, so an undertaking will not sell their products or services to customers allocated to another cartel member.


Group boycott

Group boycott is an agreement among competing undertakings not to do business with a targeted undertaking. This arrangement could target the customers in the downstream market by jointly refusing to supply or sell products or target the suppliers in the upstream market by jointly refusing to purchase products. According to the Interim Provisions on the Prohibition of Monopoly Agreements, jointly restricting a specific undertaking from trading with undertakings which are in competition with them can also be determined as a group boycott.


Output agreement

An output agreement is an agreement among competing undertakings to prevent, restrict or limit the volume or type of particular products or services available in the market. The goal of such a cartel agreement can be achieved at either the production stage or the distribution stage. At the production stage, the competing undertakings will restrict or fix the production volume of particular products. At the distribution stage, the competing undertakings will restrict or fix the sales volume of specific types or models of products.


Bid rigging

'Bid rigging' is an agreement among competing undertakings as to who will submit the winning bid when an original equipment manufacturer solicits proposals to purchase products or services. Though the AML does not expressly include bid rigging, it may be seen as a type of cartel conduct. The competition authority in China investigates and fines bid rigging-related conduct by applying article 13 AML in several highprofile cases, including the Auto Parts and Bearings case (2014) and the Auto Maritime Transportation case (2015).


Restricting R&D or new technology or products

This is an agreement among undertakings to restrict innovation or restrict the purchasing or use of new technology and products in order to maintain the ability to restrain competition and stifle new challenges to their hegemony.

Innovation, whether in the form of improved product quality and variety, or of production efficiency that allows lower prices, is a powerful engine to promote competition and enhance consumers' welfare. New technology and products are the result of innovation. This cartel rule under the AML is vitally important to preserve competition in innovation and ensure the best outcome for consumers.


Information exchanges

Information exchange among undertakings is not presumptively illegal in China, unless the cartel agreements, decisions or concerted practices can be found. Although information exchange may facilitate collusion, in most cases, an undertaking can gain insights on how to compete more effectively through information exchange and can introduce more and better products and services based on the information obtained.


Concerted practices

According to the AML, monopoly agreements are agreements, decisions or other concerted practices that eliminate or restrict competition. Finding concerted practices does not require the existence of any written or oral agreements among the competitors, rather only:

• uniformity of behaviour among competitors;

• opportunity for communication or exchange of information among competitors;

• that the uniformity cannot be reasonably explained other than as the result of improper communication among competitors; and

• the market structure, competition status, market changes and other situations of the relevant markets may facilitate collusion.


Per se illegal v rule of reason

Because cartel arrangements are subject to exemption rules under the AML, in general, cartel arrangements are not per se illegal. However, according to the Supreme Court's Provisions on Several Issues concerning the Application of Law in the Civil Disputes Arising from Monopoly Conduct of 2012 (the Antitrust Judicial Interpretation), the anti-competitive effects of price-fixing, restricting production or sales volume, market or customer allocation, restricting R&D or new technology or products, and group boycotts are presumed. An undertaking under investigation shall bear the burden of proof to fulfil the exemption requirements.

In addition, according to the Commitments Guidelines, price-fixing, restricting production or sales volume, and market or customer allocation cannot be settled by commitments from an undertaking. Therefore it will be harder for an undertaking under investigation to apply for leniency for cartel arrangements.


What level of knowledge or intention is required for a finding of liability?

In June 2020, the Standing Committee of the National People's Congress released the Draft amendment of the Administrative Penalty Law (the Draft Administrative Penalty Law) for public comments. Article 30 (3), a newly drafted provision, of the Draft Administrative Penalty Law provides that 'If the party has evidence to prove that there is no subjective fault, no administrative penalty shall be imposed.'

The current Administrative Penalty Law is silent on whether the subjective element should be considered in making an administrative penalty decision. In judicial practice, the People's Courts have different opinions on whether the subjective element constitutes one of the elements in the making of an administrative penalty decision.

In the appeal of Wang Xiaojun v Hejing County Public Security Bureau, the People's Court only considered conduct. It held that the plaintiff carried a forged driving license in his vehicle and that the Road Traffic Safety Law does not require administrative agencies to identify the subjective knowledge of the perpetrator when making administrative penalties (in this case, whether he knew, should have known but did not, or did not know the driving license was forged).

However, in the appeal of China Rail Finance Leasing Co, Ltd v Tianjin Branch of the State Administration of Foreign Exchange, Beijing No. 1 Intermediate People's Court held that the determination of a party's illegal conduct should satisfy both objective and subjective requirements: there should be conduct that violates the administrative law, and there should be subjective fault. That is, if the illegal conduct can be proved, and there is no contrary evidence that can rule out the subjective fault of the party, it should be presumed that the party is at subjective fault.

According to the Draft Administrative Penalty Law, if the existence of an illegal act can be proved, and the party has no contrary evidence to prove that its does not hold subjective fault, the party shall be presumed to have a subjective fault. Since the amendment is subject to public comments, the above provisions could be further amended in the released version.


Joint ventures and strategic alliances

5 To what extent are joint ventures and strategic alliances potentially subject to the cartel laws?


Joint Ventures

A joint venture can be established by either non-competitors or competitors. A joint venture can also compete with its participating companies or operate in a separate market. If the participating companies and the joint venture are actual or potential competitors, there is a risk of a carte being formed.


Establishment of a joint venture by competitors

Although the AML looks sceptically upon agreements between competitors, SAMR considers a joint venture as a new undertaking joining the market and increasing competition, and that, in general, joint ventures are pro-competitive behaviour, so it affords lenient treatment to the establishment of legitimate joint ventures.

Joint ventures can take a number of different forms, such as:

• the fully integrated joint venture – an integrated full line of businesses, including manufacturing, distribution, marketing and sales;

• the purchasing joint venture – enables the participating companies to procure parts, raw materials and services etc from a common source in order at economic scale to increase their purchasing power to balance with market power;

• the research joint venture – enables participating companies to increases innovation, reduce R&D costs, and so possibly create better quality products;

• the production joint venture – intergrates or creates a shared production facility among the participating companies; and

• the distribution joint venture – intergrates or creates a shared distribution channel among the participating companies.

Special attention must be paid to distribution joint ventures if the participating companies maintain their own brands and continue to compete in the market, and the only purpose of the joint venture is to coordinate distribution between the participants. Because of the structure of a distribution joint venture, it is inevitable that competing participating companies will share sensitive information and there is a strong risk that they may fix prices of their goods or divide the distribution market between them.

In general, the other forms of joint ventures established by competing companies are less likely to raise competition concern. For instance, a purchasing joint venture will lower costs and improve the quality of parts, which may lead to the final product having a lower price but a higher quality, which will benefit the consumers, while a production joint venture may achieve economic scale, which lowers the cost of production and improves efficiency, which also good for consumers of the participants' product.


No competition between a joint venture and its participating companies

In order to protect the commercial value and the effective operation of a joint venture after its formation, competing participating companies often stipulate in the transaction agreement that they will not compete with the joint venture for specified products in a geographical area for a certain period of time. Such transaction terms are collectively referred to as a 'non-compete clause'.

A non-compete clause should be restricted within a proper scope to protect the joint venture's commercial value and its effective operation. Possible forms of restriction follow.


Duration

The term of the non-compete clause should not be too long. There are no guidelines for the duration of a non-compete clause, but more than three years could attract attention.


Geographic scope

The geographical scope covered by the non-compete clause should be limited to the joint venture's business scope. In the future, if it becomes necessary to cover further areas than what the venture originally planned to enter, it is necessary to check whether a preliminary investment has been made.


Product scope

The non-compete clause is limited to the products and services that constitute the operating activities of the joint venture but may include products in the advanced development stage or that are fully developed but not yet marketed. However, non-compete clauses should not be set for products or services that are not operated by the joint venture.


Restricted undertakings

A non-compete clause may restrict the participating companies from competing with the joint venture, however, the parent companies cannot divide the market outside the joint venture's products or services and geographic scope. In addition, the non-compete clause can only restrict a participating company, its subsidiaries and commercial agents, but it cannot directly restrict distributors. The joint venture's participating companies can only achieve this goal through vertical agreements with its distributors.


Competitors participating in a joint venture cannot use it as a platform for collusion

Information sharing between a participant and the joint venture itself is acceptable under the AML, as participants have to evaluate the joint venture's performance and may need to provide support to it.

However, there is a risk that competitors may use a joint venture they are party to as a platform to achieve collusion. The cartel rules under the AML clearly prohibit the fixing of prices or dividing markets between competitors, either directly or indirectly through third parties such as joint ventures.


Joint ventures cannot use participating companies as a platform for collusion

In addition, if a participant has two or more competing joint ventures, a firewall and a clean team should be established to prevent sensitive information flowing between the competing joint ventures and a parent company.


Strategic Alliances

Competing companies may coordinate through a strategic alliance without establishing an entity (ie, forming a joint venture). The reasons for choosing a strategic alliance are that they are commercial contracts, which are easier to unwind if they do not work out, and the relationship between the parties of a strategic alliance is simple and flexible and does not require the level of work regarding tax, accounting, governance and other matters associated with the formation of a joint venture.

However, the anti-trust risk of a strategic alliance agreement should be considered. Anti-competition clauses are usually embedded in these agreements, but cartel issues may resurface when parties to a strategic alliance agreements agree on implementation agreements.


APPLICATION OF THE LAW AND JURISDICTIONAL REACH Industry-specific provisions

6 Are there any industry-specific infringements? Are there any industry-specific defences or antitrust exemptions? Is there a defence or exemption for government-sanctioned activity or regulated conduct?


Article 56 of the AML provides a block exemption for alliances or other concerted conduct by farmers and rural economic organisations in activities such as production, processing, sales, transportation and storage of agricultural products.

There are no explicit defences or exemptions for specific industries or government-sanctioned conduct.

The NDRC issued the Guide to the Pricing Behaviour of Operators Dealing in Drugs and Active Pharmaceutical Ingredients in Short Supply effective as of 16 November 2017 to regulate the market price behaviours of drugs in short supply and active pharmaceutical ingredients (API). SAMR is drafting anti-trust guideline for the auto sector and plans to introduce guideline by 2020. These two provisions are industry specific cartel provisions introduced by authorities.


Application of the law

7 Does the law apply to individuals, corporations and other entities?

Article 12 of the Anti-Monopoly Law of China (AML) defines an 'undertaking' as a natural person, a legal person or any other organisation that engages in the production or operation of commodities or provisions of services. As a result, the law generally applies to both individuals and corporations. However, when an employee is involved in a cartel on behalf of a corporation, only the corporation is liable as the corporation is the undertaking in that situation.


Extraterritoriality

8 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If so, on what jurisdictional basis?

According to article 2 of the AML, the law is applicable to monopolistic conduct outside the territory of China that has the effect of eliminating or restricting competition within the domestic market of China. There have been a number of cartel cases, including the LCD Panel case (2013), Auto Parts and Bearings case (2014), and Auto Maritime Transportation case (2015), where conduct outside China was found to be in violation of the AML.

To establish that conduct outside China has an anti-competitive effect in China the product under investigation must be imported into China, and there is a reasonable causal nexus between the alleged conduct and the anti-competitive effect in China.


Export cartels

9 Is there an exemption or defence for conduct that only affects customers or other parties outside the jurisdiction?

Article 15(6) of the AML permits exemptions to be granted for monopoly agreements that are entered into for the purpose of protecting the legitimate interest of international trade and foreign economic cooperation. This provision has been included to permit export cartels.


Industry-specific provisions

10 Are there any industry-specific infringements? Are there any industry-specific defences or exemptions?

Agriculture

Article 56 of the AML provides that the AML shall not apply to co-operative or collaborative acts between agricultural producers and rural economic organisations in business activities such as the manufacturing, processing, sale, transportation and storage etc of agricultural products. This article is only applicable to agricultural producers and rural economic organisations; industrialised undertakings in the agricultural sector cannot enjoy this exemption. In addition, this article is only applicable to cartel activities, abusive conduct and resale price maintenance (RPM) can still be caught under the AML. For instance, article 56 makes the price-fixing conduct of farmers in several villages agreeing to raise the prices of crops, meat, milk or eggs at the same time exempt from the AML.

'Agricultural producers' refers to undertakings and individuals operating in agricultural crop cultivation, forestry, animal husbandry or fisheries in agricultural land and separate facilities.

A 'rural economic organisation' are special economic organisations that are the main form of rural collective asset management. At this stage, local government authorities above the county level are responsible for issuing organisation registration certificates to these organisations, which enables them to follow the relevant procedures for opening bank accounts with the relevant government departments in order to carry out business operations and management.


Active pharmaceutical ingredients

The Guide to the Pricing Behavior of Undertakings Dealing in Drugs in Short Supply and Active Pharmaceutical Ingredients (the API Pricing Guidelines) issued in November 2017 and the Antitrust Guideline in the field of Active Pharmaceutical Ingredients (draft for comments) (the Draft API Guidelines) issued in October 2020 regulate the cartel activities related to active pharmaceutical ingredients (APIs).

According to the API Pricing Guidelines, the AML prohibits any of the following horizontal monopolistic price agreements by competing API undertakings:

• fixing the price level or the range of price;

• fixing the tender price;

• fixing agency fees, distribution fees, market discounts and other expenses influencing the price;

• fixing the benchmark price, profit rate, gross profit rate, etc for transactions with any third party;

• agreeing upon a standard formula to calculate the price of an API;

• fixing the price by limiting the output or sales volume;

• fixing the price by dividing the market;

• fixing the price by restricting the purchasing of new technologies or equipment, or restricting the development of new technologies or products;

• fixing the price by boycotting transactions; and

• fixing the price in any other disguised form.

The Draft API Guidelines cover broader anti-trust issues, such as abusive of dominance, merger control and abuse of administrative power related to the API. According to the Draft API Guidelines, in a cartel investigation, SAMR or PMRD has the discretion to not define the relevant market; however, if an undertaking under cartel investigation wants to apply for an exemption under the AML, a market definition is required in order to prove that the market competition is not seriously restricted.

The Draft API Guidelines also states that the API, in general, constitute an independent market and may be further divided. This means that the API related anti-trust investigations are more likely to involve abusive conduct, as it is very likely that API manufacturers and distributors will be assumed, whether independently or jointly, to dominate the API manufacturing or distribution markets.

The significant cartel rules under the Draft API Guidelines are:

• Competing API manufacturers shall avoid reaching joint production agreements, joint purchase agreements, joint distribution agreements and joint bidding agreements with competitors. This provision is strong signal that SAMR and PMRD take a harsher position on API-related cases, as joint production and joint purchase agreements in the automotive industry are considered exempt under the AML.

• Competing API manufacturers shall avoid sharing sensitive information through third parties (such as API distributors or pharmaceutical manufacturers). This is the first time that a sharing information rule is specifically addressed in anti-trust guidelines.

The Draft API Guidelines is subject to further revision. No matter how this document will be revised, as stated in article 20 of the Draft API Guidelines, SMAR and PMRD will strictly and severely investigate anti-trust acts related to API.


Automobiles

According to article 5(1) of the Anti-trust Guidelines for the Automotive Industry (the Auto Guidelines) issued by the Anti-monopoly Committee of the State Council (AMC) in 2019 (published in June 2020):

[Certain] types of horizontal agreements, for instance, research & development agreements, agreements on specialisation, technology standardisation agreements, joint production agreements and joint purchase agreements, would generally improve the efficiency and promote competition and are conducive to increasing the benefits of the consumers. For instance, the horizontal agreements during the R&D and production processes of a new energy automobile may enable the undertakings to share the investment risks, improve the efficiency and promote social public interests. Hence, undertakings in the automotive industry that reach the aforesaid horizontal agreements that can improve efficiency and promote competition may prove that the provisions of article 13 of the AML do not apply to their agreements pursuant to article 15 of the AML.

The Auto Guidelines reshape the rules on vertical monopoly agreements in China, and its impact extends beyond the automotive industry.


Government-approved conduct

11 Is there a defence or exemption for state actions, government-approved activity or regulated conduct?

State actions and government-approved activity are not justifications for the cartel under the AML

According to the AML and the Interim Provisions on Prohibiting Acts of Abuse of Administrative Authority to Eliminate or Restrict Competition (Abuse of Administratie Authority Provision), administrative authorities shall not abuse their administrative authority to compel or compel in a disguised form undertakings to engage in the monopolistic practices in violation of the AML. In addition, the Opinions on Establishing a Fair Competition Review System During the Development of Market-oriented Systems (FCR Opinions) was issued in 2016. The purpose of the Fair Competition Review System (FCRS) is to prevent policy-making bodies from issuing measures that eliminate or restrict competition and to gradually abolish regulations and practices that hinder the creation of a unified market and fair competition. According to the FCR Opinions, the administrative authority cannot force the undertakings to engage in the monopolistic practices in violation of the AML, and cannot set government pricing exceeding the pricing authorities. Therefore, according to the above provisions and opinions, the cartels endorsed under the state actions or approved by the government are not exempted from the AML.


Government-guided prices or government-set prices are permitted in China with narrow application

In general, the administrative authorities shall not misuse their authority by drafting regulations containing provisions that eliminate or restrict competition.

However, government-guided prices and government-set prices are permitted under the Price Law and the Rules for the Pricing Activities of the Government (issued in August 2017). About 3 per cent of the prices in China are government-guided prices or government-set prices. The price related to important public utilities, public welfare services, and goods and services operated under the natural monopoly will be based on the pricing catalogue drafted by the central or a local government. Undertakings follow the government-guided prices or government-set prices are not caught under the AML.


INVESTIGATIONS

Steps in an investigation

12 What are the typical steps in an investigation?

A cartel investigation usually is started by a whistle-blower or a cartel member applying for leniency. The State Administration for Market Regulation (SAMR) or a local Provincial Market Regulatory Department (PMRD) may also initiate an investigation if it has reason to believe there has been a cartel infringement.


Pre-investigation

At this stage, SAMR or PMRD will conduct an external investigation to understand the background and verify the evidence obtained to determine whether to formally initiate an anti-trust investigation. The PMRD may communicate with SAMR before initiating the investigation.


Initiation of an investigation

SAMR or PMRD may initiate an anti-trust investigation at their own discretion if one believes there is a good case to pursue. A PMRD shall, within seven working days after the initiation of an anti-trust investigation, report the case to SAMR for its records. No notice of investigation can be obtained by the entity under investigation.


Leniency applications

An undertaking under investigation may file a leniency application to SAMR or a PMRD. SAMR or the PMRD shall decide whether to give a mitigated penalty or exempt the undertaking from a penalty by considering factors including the time sequence of the voluntary reporting by the undertaking, the degree of importance of the evidence provided, and the relevant information on the conclusion or implementation of the monopoly agreement concerned.


Fact-finding and dawn raids

SAMR and PMRDs have broad investigative powers and, during the fact-finding stage, SAMR or PMRD may carry out a dawn raid on the undertaking under investigation by conducting an on-site inspection to collect and fix evidence, conducting interrogations and request the undertaking to provide documents.

Undertakings which are under investigation and interested parties have the right to voice their views. SAMR or PMRD shall verify the facts, reasons and evidence presented by undertakings under investigation or interested parties.

SAMR or PMRD will ask undertakings under investigation to submit documents or provide explanations for certain conduct. The fact-finding process may last for several months, even years, and the scope of the investigation may be upstream, downstream or involve competitors of  the undertaking under investigation.


Decisions on cancellation, suspension, resumption or termination of an investigation

The investigation can be cancelled if no violation can be found. The investigation can be suspended if the undertaking which submits an application agrees to undertake certain specific measures that will lead to the elimination of the effect of suspicious practices within a time limit designated by SAMR. If such measures are properly implemented in the agreed period of time, SAMR may terminate the investigation. The investigation could be resumed if the measures are not implemented as promised.


Expert argumentation meeting

There is an Expert Committee under the Anti-monopoly Commission of the State Council. Seventeen experts in the Expert Committee can be called on by SAMR to attend an expert argumentation meeting to give an expert opinion on the findings and preliminary decisions of SAMR.


Oral notice for the finding of the case

After the expert argumentation meeting, SAMR will release its findings and its preliminary decision to the undertaking under investigation orally. The oral notice may include the proposed fine base and the proposed rate of fine. The undertaking can provide SAMR with a statement or argument to challenge the facts and the law's application.


Prior notice for administrative penalties

After communication between SAMR and the undertaking under investigation, SAMR will issue the Prior Notice for the Administrative Penalty. This is a notice in written form stating the facts, the violation found, the fine base and the rate of fine. It will state the right for the undertaking to make a statement, an argument or apply for a hearing. The undertaking under investigation may challenge the decision, the fine base and the rate of fine to reduce the penalty.


Final decision on administrative penalties

After the undertaking under investigation provides the statement, argument or attends the hearing, SAMR will issue the final decision on the administrative penalty. The wording of the decision could be negotiated if it contains trade secrets.


Publication

A decision on the administrate penalty or a decision on suspending terminating an investigation will be released to the public through SAMR's website.


Administrative review or administrative lawsuit

If the undertaking does not accept a decision made by SAMR, it may apply for administrative review or file an administrative lawsuit.

There is no statutory timeline for a cartel investigation. In practice, the time spent on an investigation varies depending on the complexity of  the case, SAMR's internal priorities, the cooperation of the undertakings under investigation, etc.


Investigative powers of the authorities

13 What investigative powers do the authorities have? Is court approval required to invoke these powers?

Article 39 of the Anti-Monopoly Law of China (AML) grants SAMR and PMRDs broad investigative powers, including the ability to:

• conduct on-premise inspections of the place of business of the investigated undertaking or other relevant places;

• question the investigated undertaking, interested parties, and other relevant entities and individuals, requiring them to provide relevant information;

• examine or copy relevant documents and information including related documentation, contracts, accounting books, business mails, and electronic data, etc, of the investigated undertaking, interested parties, and other relevant entities or individuals;

• seal up and detain relevant evidence; and

• enquire about the bank accounts of the undertakings. SAMR and PMRDs do not need to obtain court orders for searches, seizures, and other investigative actions. In practice, before any measures authorised by article 39 may be taken, a written report shall be submitted to the leadership of SAMR or the PMRD for approval.


INTERNATIONAL COOPERATION

Inter-agency cooperation

14 Is there cooperation with authorities in other jurisdictions? If so, what is the legal basis for, and extent of, such cooperation?

The State Administration for Market Regulation (SAMR) has pursued bilateral cooperation with their counterparts in other jurisdictions. Since the enactment of the Anti-Monopoly Law of China (AML) in 2008, it has entered into at least 55 cooperation agreements or memoranda of understanding (MoUs) with competition authorities in 28 countries and regions, including the United States, the European Union, Japan, Korea and Australia.

In July 2011, the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC) signed an anti-trust MoU with the US Federal Trade Commission and Department of Justice to foster cooperation in the enforcement of their competition laws and policies.

In September 2012, the NDRC, the SAIC and the Directorate-General Competition of the EU signed an MoU, which created a dedicated framework to strengthen cooperation and coordination between DG Competition and China authority concerning legislation, enforcement and technical cooperation regarding cartels, other restrictive agreements and abuse of dominant market positions.

In May 2019, SAMR concluded an MoU with the Japan Fair Trade Commission, which provides that the authorities will provide information to each other on individual cases that both investigate or review.

In May 2012, NDRC and the Korea Fair Trade Commission signed an MoU to cooperate in work related to international cartels, abuses of dominance, abuses of intellectual property and cross-border violations of South Korea's Monopoly Regulation and Fair Trade Act.

In November 2015, NDRC and the Australian Competition and Consumer Commission signed an MoU to allow the agencies to take coordinated action in response to anti-competitive conduct, including through the exchange of information and evidence.

In terms of multilateral cooperation, China is not a member of the International Competition Network (ICN) or the OECD. However, consolidation of China's three anti-trust agencies will smooth communication and coordination between SAMR and ICN and the OECD. As a member state of the United Nations, China is involved in some of the work of the competition group of the UN Conference on Trade and Development.


Interplay between jurisdictions

15 Which jurisdictions have significant interplay with your jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity in cross-border cases in your jurisdiction?

Despite the bilateral cooperation and communication between SAMR and anti-trust enforcement agencies in other jurisdictions, inter jurisdictional cooperation remains high level, and so far there is no clear indication of working-level coordination between jurisdictions in specific investigations.


CARTEL PROCEEDINGS

Decisions

16 How is a cartel proceeding adjudicated or determined?

After State Administration for Market Regulation (SAMR) or a Provincial Market Regulatory Department (PMRD) establishes a finding of a monopoly agreement, it will issue a formal penalty decision and a public announcement. Usually, SAMR or PMRD is obliged to issue a 'prior notice for administrative penalties' to the investigated parties before issuing the formal penalty decision. The investigated undertaking may request a formal hearing or otherwise submit a written representation or defence, but often has only a few days to do so. There is no mandatory time limit between the issuance of the prior notice for administrative penalties and the formal decision, and SAMR or PMRD has the discretion to set this period.

The hearing and written submission provide investigated parties with an opportunity to challenge the to-be-issued formal penalty decision before resorting to the appeal process. If the defence is accepted by SAMR or the PMRD, no penalty will be imposed.


Burden of proof

17 Which party has the burden of proof? What is the level of proof required?

In public enforcement, SAMR or the PMRD bears the burden to prove the existence of a cartel. Once SAMR or PMRD has proved the existence of a cartel, it is hard for the parties to rebut the presumption of anticompetitive effects.

As to cartel-related private actions, the general rule is a litigant must provide evidence to prove the facts on which its claims are based or the facts on which its rebuttal of the counterparty's claims are based, except otherwise stipulated by the law. Prior to the making of a judgment, where a litigant is unable to provide evidence or adequate evidence to prove its assertions, the litigant who has the burden of proof bears the adverse consequences.

In anti-trust litigation, if the alleged monopolistic conduct is an entry into a horizontal agreement of price-fixing, division of the market, a restriction on output, a restriction on research and development or a joint boycott, the defendant has the burden to prove that those agreements do not have the effects of eliminating or restricting the competition. If the alleged monopolistic conduct is entering into a vertical agreement of resale price maintenance, the plaintiff has the burden to prove the resale price maintenance and the effects of eliminating or restricting the competition.

At present, a high degree of probability is the standard of proof that is applicable. Beyond reasonable doubt and a comparatively high degree of probability are supplementary standards of proof.


High degree of probability

Article 108 of the Judicial Interpretation of the Civil Procedural Law provides the foundation of the general standard of proof of 'high degree of probability':

. . . for evidence provided by a litigant who has the burden of proof, where the People's Court, upon examination and taking into account the relevant facts, confirms that it is highly probable that the facts sought to be proved exist, the People's Court shall deem that the facts exist.


Beyond a reasonable doubt

For evidence provided by litigation to prove the facts of fraud, duress or malicious collusion, or to prove the facts of a verbal will or gift, where the People's Court concludes that the possibility of the existence of the facts sought to be proved is beyond a reasonable doubt, the People's Court will deem that the facts exist. (See article 86 of the Several Provisions of the Supreme People's Court on Evidence for Civil Actions.)


Comparatively high degree of probability

For the facts relating to procedural matters, such as litigation preservation or abstention, where the People's Court takes into account the litigant's statement and the relevant evidence to conclude that the relevant facts are comparatively highly probable, the People's Court may deem that the facts are existent. (See article 86 of the Several Provisions of the Supreme People's Court on Evidence for Civil Actions.)


Circumstantial evidence

18 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement?

Circumstantial evidence is acceptable. In particular, concerted practices, which are considered a form of cartel agreement, may be established by the finding of an exchange of information (or even the opportunity for such an exchange) and subsequent parallel competitive behaviours.


Appeal process

19 What is the appeal process?

There are two routes available to an undertaking to challenge an administrative penalty decision of SAMR or a PMRD after the formal penalty decision has been made: an administrative review and administrative litigation.

After a formal penalty decision is made, the undertaking has 15 days to pay any penalties. Applying for an administrative review or filing an administrative suit with a court does not suspend the payment of penalties.


Administrative review

The competent authorities

Administrative review is a procedure that generally applies to penalties imposed by administrative agencies. For the penalty decision made by SAMR, the application for administrative review shall be submitted to SAMR. Decisions made by PMRD can be challenged either at the provincial government level or with SAMR, subject to the applicant's discretion.


Who may file an application for an administrative review

The undertaking under investigation that is subject to a penalty imposed by SAMR or a PMRD (the administrative counterpart), or undertakings which have an interest in a specific administrative decision of SAMR or a PMRD may file an application for administrative review to the competent authority.

Foreign nationals, stateless persons and foreign organisations may also file such an application.


The standard of review

The review is, in principle, limited to on-paper review, with the possibility of a hearing or consultation upon request by the applicant or the discretion of the reviewing agency. After the administrative review, the administrative decisions can be nullified, changed or confirmed to be illegal, if:

• the main facts are unclear and the material evidence is inadequate;

• the application of the law is incorrect;

• the statutory procedures have been violated;

• the power of authority has been exceeded or abused; or

• the administrative decision is obviously inappropriate.


Process and timing

The undertaking must apply for administrative review within 60 days of receipt of the formal decision. The agency has 60 days from accepting an application to make a decision, which can be extended by up to 30 days upon approval.

The applicant may file for administrative litigation if it is unsatisfied with the decision of the administrative review.


Administrative litigation

The c administrative lawsuit

An undertaking can challenge a SAMR or PMRD penalty decision via an administrative lawsuit in a court. For the decision issued by a PMRD, the undertaking can bring an administrative lawsuit directly to the Basic or Intermediate People's Courts where the PMRD is located. For decisions issued by SAMR, the undertaking can bring an administrative lawsuit directly to the First Intermediate People's Court of Beijing.


Who has the right to file an administrative lawsuit?

An administrative counterpart or any citizen, legal person or other organisation who or which has interests in a specific administrative decision of SAMR or PMRD has the right to initiate an administrative lawsuit. The 'interests' could be:

• the decision of SAMR or PMRD involves its right to fair competition;

• the revocation or change of the decision of SAMR or PMRD involves its lawful rights and interests; or

• the undertaking has made a complaint to SAMR or PMRD, and it has not handled the case.


The standard of review

In an administrative lawsuit, the People's Court will look at the facts and the application of the law. The People's Court may make a ruling to nullify or partially nullify the administrative decision, or rule that the defendant make a new administrative decision, in the following cases:

• inadequacy of material evidence;

• erroneous application of the law or regulations;

• violation of legal procedure;

• exceeding authority;

• abuse of powers; and

• obvious unfairness.


The process and timing

The undertaking must file the administrative suit within six months of receipt of the formal penalty decision. Administrative lawsuits are usually accepted at the time of filing if formalities are complete; if not, the court will provide a time limit for the plaintiff to supplement the formalities. The court must make its first instance decision within six months of acceptance of the case. This period can be extended upon approval.

From 2019, the Intellectual Property Tribunal of the Supreme People's Court can bypass the Higher People's Courts and directly hear appeals against the rulings and judgments of first-instance civil and administrative monopoly cases made by the Intellectual Property Courts and the Intermediate People's Courts. This is called a 'leapfrog' appeal.


SANCTIONS

Criminal sanctions

20 What, if any, criminal sanctions are there for cartel activity?

Except for bid rigging or obstructing law enforcement by means of violence or threat, cartel behaviour is generally not a criminal violation in China.


Bid rigging

According to the Criminal Law, bidders who act in collusion with each other in offering bidding prices, jeopardising the interests of bid inviters and other bidders, shall, if the circumstances are serious, be sentenced to fixed-term imprisonment of not more than three years or criminal detention and may also be fined.

A crime of 'bid-rigging' crime is not a concept that originated in the AML. In 1993, the Anti-Unfair Competition Law first touched on this issue, providing that bidders shall not collude in bidding to raise or lower the bid price. In 1999, the Bidding Law provided that bidders shall not collude with each other in bid quotations, and shall not crowd out other bidders to damage the lawful rights and interests of the tenderer or other bidders. The bid-rigging criminal offence was introduced in the Criminal Law in 1997. All the above legislations are earlier than the AML in 2008, and the Bid rigging crime is not a part of the AML.

According to statistics, about 75 per cent of bid-rigging is found in the construction industry. The longest sentence for bid-rigging is two years and six months where the offender paid a 'reasonable benefit' to other bidders and asked them not to compete genuinely and let the offender win the bid.


Obstructing law enforcement by means of violence or threat

According to the Criminal Law, whoever obstructs a functionary of a state organ from carrying out its functions according to law by means of violence or threat shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention, public surveillance or be fined. (Criminal detention shall be not less than one month but not more than six months and is carried out by the public security organ in the vicinity the obstruction occurred in. During the period of detention, the criminal may return for one to two days each month.)

The longest sentence for obstructing law enforcement by means of violence or threat is one year and six months.


Civil and administrative sanctions

21 What civil or administrative sanctions are there for cartel activity?

SAMR or a PMRD may impose the following penalties against cartel arrangement according to the AML:

• order the illegal act to cease;

• confiscate illegal income; and

• order the undertaking to pay a fine of 1 per cent to 10 per cent of its sales volume for the preceding year.


In practice, 'preceding year' refers to the fiscal year before an investigation is launched. A fiscal year spans from 1 January to 31 December based on the Gregorian calendar. Where an undertaking adopts a different fiscal year system, adjustments shall be made accordingly.

Where a monopoly agreement has been entered into but has not been implemented, a fine of not more than 500,000 yuan may be imposed.

Where an industry association has violated the provisions of the AML in organising the undertakings in the industry to enter into a monopoly agreement, SAMR or a PMRD may impose a fine of not more than 500,000 yuan; where the case is serious, the registration and administrative authorities for social organisations may de-register the industry association pursuant to the law.

In recent years, enforcement against cartels has increased, with increasingly higher penalties imposed on the cartel members and any industry association organising the cartel activities.

The highest fines against cartel conduct to date were made in the 2014 penalty decision against 12 Japanese auto parts and bearing companies. Eight auto parts manufacturers were imposed fines totalling 831.96 million yuan (Hitachi was exempted from this penalty) and four bearing manufacturers were imposed fines totalling 403.44 million yuan (Nachi-Fujikoshi was exempted from this penalty). The combined amount of the fines reaches 1.24 billion yuan, representing 4 per cent to 8 per cent of the penalised companies' annual turnovers.

In a 2017 penalty decision against 23 electricity companies and the electricity industrial association in Shanxi Province, the industrial association organising the price-fixing agreement was fined 500,000 yuan, the maximum fine available for industrial association under the AML.

In terms of civil sanctions, a plaintiff can file a civil lawsuit seeking compensation for damages caused by the alleged cartel activities. In addition, the party losing the litigation generally bears the litigation fees charged by the court; upon the plaintiff's request, the court may also incorporate plaintiff's reasonable costs for investigation and prevention of the cartel activity into the amount of damages.


Guidelines for sanction levels

22 Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty levels normally established? What are the main aggravating and mitigating factors that are considered?

To determine the specific amount of a fine, SAMR shall consider factors such as the nature, extent and duration of the cartel.


Step 1: Determining the base fine

The fine will be imposed on the basis of the preceding year's sales revenue. In practice, 'preceeding year' refers to the fiscal year before an investigation is launched. A fiscal year spans from 1 January to 31 December based on the Gregorian calendar. Where an undertaking adopts a different fiscal year system, adjustments shall be made accordingly.

The scope of the fine may be narrowed to the relevant products under the investigation and the geographical area covered by the cartel. If the geographical area concerned is beyond the territory of China, SAMR generally takes the China-wide domestic sales revenue as the basis for calculating fines. However, since it was established, SAMR has used the total sales revenue of the undertaking under investigation as the base to impose a fine, in order to increase deterrence and unify the standard of antitrust enforcement.

The undertaking subject to the fine could be narrowed down to the undertaking which directly implements the cartel. However, SAMR may impose fines on a parent company, provided that the parent company can exercise decisive influence over the undertaking that has engaged in the cartel.


Step 2: To determine the fine rate

In general, the initial fine rate against cartel agreements will be 2 per cent or 3 per cent according to the Draft Guidelines on the Determination of Illegal Gains and Fines in Relation to undertakings' Monopolistic Conduct (the Draft Guidelines on Fines). The Draft Guidelines on Fines has not yet been enacted, but it reflects the practice of the authority and can be used as a helpful reference. For price fixing, limiting the output or sales, or dividing the market, the initial fine rate is 3 per cent, because such a cartel agreement usually aims at eliminating or restricting competition with the most severe harm to competition, and can hardly promote competition, or benefit consumers. For the restriction on R&D, group boycotts and other cartel agreements, the initial fine rate is 2 per cent.


Step 3: Adjust the fine rate according to aggravating or mitigating

circumstances

SAMR has full discretion to adjust the initial fine rate by considering the following aggravating and mitigating circumstances:

• +1 per cent for playing a leading role in monopolistic conduct, coercing other undertakings to implement the monopolistic conduct, or preventing other undertakings from discontinuing the monopolistic conduct;

• +1 per cent for committing multiple examples of monopolistic conduct in the same case or having violated the AML in the past;

• a maximum of +10 per cent for monopolistic conduct that continues beyond one year, calculated as follows:

• +0.5 per cent for a period of up to six months, beyond the first year;

• +1 per cent for each full year, or a period of between six to 12 months, beyond the first year;

• +0.5 per cent for continuing monopolistic conduct after being ordered to cease by SAMR or a PMRD; and

• +0.5 per cent for other aggravating circumstances not listed above. The following mitigating circumstances cause the following adjustments to be applied:

• -1 per cent: being coerced to implement the monopolistic conduct by other undertakings;

• -1 per cent: being forced or coerced to implement the monopolistic conduct by administrative authorities;

• -1 per cent: cooperating with an anti-monopoly enforcement agency and showing meritorious performance;

• -1 per cent: taking the initiative to eliminate the harm and consequences of illegal activities;

• -0.5 per cent: taking the initiative to mitigate the harm and consequences of illegal activities;

• -0.5 per cent: voluntarily providing relevant evidence of other undertakings' violations of the AML; and

• -0.5 per cent: other mitigating circumstances.


Compliance programmes

23 Are sanctions reduced if the organisation had a compliance programme in place at the time of the infringement?

The AML and the Antitrust Compliance Guidelines for Undertakings issued by the Anti-monopoly Commission in September 2020 are silent on whether the existence of a compliance programme affects the level of the fine. Based on the past practice of SAMR and PMRDs, the mere existence of a compliance programme is not recognised as a factor affecting the level of a fine. In the view of SAMR and PMRDs, if the compliance programme is effective, there should be no suspicious cartel activities at all.

Establishing or strengthening anti-trust compliance programme going forward, even after SAMR or PMRD initiate an investigation, is more helpful as this shows that the parties are willing to cooperate and take the authority's concerns seriously.


Director disqualification

24 Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or officers?

There are no relevant laws or regulations prohibiting individuals from serving as director, supervisor or senior officer of a company due to conducting a cartel.

The Antitrust Compliance Guidelines for Undertakings encourages

undertakings to:

• establish and improve anti-monopoly compliance assessments and reward and punishment mechanisms for employees;

• make anti-monopoly compliance assessments results important bases for employee and department performance assessments; and

• punish violations and improve incentives for employee compliance with relevant provisions of the AML. However, the Antitrust Compliance Guidelines for Undertakings is not a law and is not mandatory


Debarment

25 Is debarment from government procurement procedures automatic, available as a discretionary sanction, or not available in response to cartel infringements?

The AML and its relevant regulations do not provide for debarment as a form of penalty against anti-competitive conduct, including cartel infringements. However, article 53 of the Bidding Law provides for debarment for bid-rigging. Specifically, for severe bid-rigging violations, the bidder shall be disqualified for one to two years from taking part in bidding for projects for which a bid invitation is required by law.

 

Parallel proceedings

26 Where possible sanctions for cartel activity include criminal and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the choice of which sanction to pursue made?

The administrative penalty imposed by SAMR or a PMRD does not preclude private civil litigation against the same conduct. Both 'standalone' actions and 'follow-on' actions after the decision of SAMR or PMRD are permitted.

Tian Junwei v Carrefour and Abbott (2016) was a follow-on private litigation of an NDRC penalty decision against baby formula manufacturers for resale price maintenance. The suit was dismissed since court considered that the penalty decision submitted by plaintiff Tian Junwei could not prove that there is a monopoly agreement between Carrefour Shuangjing Store and Abbott. More specifically, the decision of an administrative penalty issued by NDRC only proved that Abbott and its downstream undertakings had a fixed vertical monopoly agreement on the price of milk powder when reselling milk powder to a third party, but it was not clear who was the other party of the vertical monopoly agreement, therefore, it was unreasonable to directly conclude that Carrefour Shuangjing Store and Abbott had a vertical monopoly agreement.

This case demonstrates the possibility of parallel proceedings and a de novo review by the court.


PRIVATE RIGHTS OF ACTION

Private damage claims

27 Are private damage claims available for direct and indirect purchasers? Do purchasers that acquired the affected product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the prices they paid ('umbrella purchaser claims')? What level of damages and cost awards can be recovered?


Private damage claims are available for indirect purchasers

Neither the Anti-Monopoly Law of China (AML) nor the Anti-Monopoly Judicial Interpretation distinguishes between direct purchasers and indirect purchasers. Indirect purchasers are allowed to file antitrust civil actions with courts as no laws or precedents have prohibited this. Pursuant to the Civil Procedure Law, the plaintiff should have a direct interest in the case to have standing to file a lawsuit. An indirect purchaser who suffers losses from cartel arrangement may file a lawsuit under the AML.

In Tian Junwei v Carrefour and Abbott (2016), Tian Junwei, a consumer or indirect purchaser, who purchased a tin of Abbott's infant formula at a Carrefour supermarket in Shuangjing Beijing filed a lawsuit against Carrefour Shuangjing Store and Abbott Shanghai for the resale price maintenance imposed by Abbott upon Carrefour Shuangjing Store (the direct purchaser). The plaintiff was challenged that he did not have the standing to file the lawsuit. The court held that Junwei Tian, as an indirect purchaser, had the right to bring anti-trust litigation in court. In the appeal, the Beijing Higher People's Court rejected the jurisdictional challenge filed by Abbott and Carrefour.

According to the general rules relating to the burden of proof, if the plaintiff is an indirect purchaser challenging price-fixing, it has the burden to prove that a horizontal agreement has been reached by the defendant and its competitors and that the direct purchaser has passed on the damages caused by higher pricing to the indirect purchaser. The defendant (direct purchaser) then has the burden to prove that the passing on has not occurred, and it bears the cost.

If the plaintiff is a direct purchaser challenging price-fixing, it has the burden to prove a horizontal price-fixing agreement. The defendant (supplier) then has the burden to prove that passing on has occurred, and the direct purchaser does not suffer any losses.

In practice, it is unlikely undertakings that purchased an affected product from non-cartel members would bring claims against cartel members based on alleged parallel increases in the prices they paid, as it would be much easier to purchase a product from cartel members to have the standing to sue.

In theory, umbrella purchaser claims are possible in an oligopolistic market, if the plaintiff can prove:

• the existence of a cartel;

• the product purchased from non-cartel members is a competing product (in order to do so the market definition is inevitable); and

• the product purchased from non-cartel members is affected by the cartel arrangement, such as being subject to a price increase at the same level as cartel members.


In a competitive market, such an umbrella purchaser claim has almost no chance to win.

Double or treble damages, or other kinds of punitive damages, are not available under the AML. According to the Anti-Monopoly Judicial Interpretation, upon a request from the plaintiff, the court may consider the plaintiff's reasonable costs for investigation and prevention of the monopoly conduct when deciding the amount of damages.


Class actions

28 Are class actions possible? If so, what is the process for such cases? If not, what is the scope for representative or group actions and what is the process for such cases?

China does not have class actions but it does have representative claims. Pursuant to the Civil Procedure Law, a joint lawsuit (in which there are numerous plaintiffs) may be brought by representatives selected by and from the group of plaintiffs.

In the case of a joint action where there more than 10 persons comprising one party to the lawsuit, the litigants may elect a representative to participate in the proceedings. The litigation actions of the representative will be binding upon the litigants that he or she represents. For changes of representative, waivers of the claims of the action or confirmation of the claims of the counterparty litigants or settlement, consent by the litigants he or she represents is required.

If multiple litigants cannot be confirmed at the time of the filing of the lawsuit, the relevant People's Court may issue a public announcement, stating the facts of the case and the claims, and notify the rights holders to register with the People's Court within a stipulated period.

 

COOPERATING PARTIES

Immunity

29 Is there an immunity programme? If so, what are the basic elements of the programme? What is the importance of being 'first in' to cooperate?

An immunity programme that provides full leniency or amnesty is available under the Anti-Monopoly Law of China (AML). State Administration for Market Regulation (SAMR) and Provincial Market Regulatory Departments (PMRDs) have the discretion to grant immunity or mitigate the penalty for undertakings participating in a cartel if undertaking voluntarily reports the relevant facts and provides material evidence.

According to the Leniency Guidelines published in June 2020, the immunity and mitigated rate shall be determined according to the following rules:

• for the first applicant, SAMR or PMRD may grant immunity to such undertaking or mitigate the fine amount by not less than 80 per cent;

• for the second applicant, the fine amount may be mitigated by 30 per cent to 50 per cent;

• for the third applicant, the fine amount may be mitigated by 20 per cent to 30 per cent; and

• for subsequent applicants, the fine amount can be mitigated by not more than 20 per cent.

 

When determining the confiscation of illegal earnings, SAMR or PMRD may apply the same immunity and mitigated rate to deal with the illegal earnings.

To obtain immunity or a mitigated sanction, the undertaking must cease the suspected cartel arrangements immediately after making the application for leniency; unless SAMR or a PMRD requires it to continue carrying out the cartel acts in order to ensure the smooth progression of the investigation. If the undertaking has applied for leniency from an overseas law enforcement agency which requires it to continue to perform the cartel acts, it shall report this to SAMR or a PMRD.

The undertaking must also cooperate promptly, continuously, comprehensively and sincerely with the investigation, properly preserving and providing evidence and information, and must not conceal, destroy or transfer evidence or provide false materials or information or engage in any other conduct that may affect the anti-trust investigation.

The application for leniency must not be disclosed without the consent of SAMR or the PMRD.


Basic elements of the immunity programme

According to the Leniency Guidelines published in June 2020, the leniency application shall be accompanied by a report and material evidence.

The report must include:

• basic information of the participants of the cartel agreement (including but not limited to name, address, contact information and participating representatives, etc);

• the background of the cartel agreement (including but not limited to the time, place, content, and specific participants of the agreement);

• the main content of the cartel agreement (including but not limited to the products or services involved, price, quantity, etc);

• the undertakings' conclusion and implementation of the cartel agreement;

• the geographic area and market scale affected by the cartel agreement;

• the duration of the implementation of the cartel agreement;

• explanation of the material evidence;

 whether the undertaking has applied for leniency from other overseas law enforcement agencies; and

• other relevant documents and materials.


'Material evidence' refers to evidence which plays a critical role in the launch of an antitrust investigation or the determination of a monopoly agreement by SAMR or PMRD, including:

• for the first-in:

• providing sufficient evidence for an anti-trust investigation to be launched, if SAMR or the PMRD had no clues or evidence;

• providing evidence the SAMR or PMRD can use to determine a monopoly agreement exists under the AML.

• for the second and following applicants, providing:

• evidence that has greater proving power or supplementary proving value in terms of the conclusion and implementation of the cartel agreement;

• evidence that has supplementary proving value to prove:

• the content of the cartel agreement;

• the time of the conclusion and implementation of the cartel agreement;

• the scope of the products or services involved; and

• the participating members; and

• other evidence that can prove the cartel agreement, or fix the probative power of the evidence that proves the cartel agreement.


A leniency application can be made orally. In practice, SAMR or PMRD permits an undertaking to orally submit the leniency application if there are disclosure risks in the context of civil litigation. The oral submission will be conducted at the office of SAMR or a PMRD. SAMR or PMRD officials will make written records of the oral submission, which shall be verified and signed by the representatives of the undertaking.


Subsequent cooperating parties

30 Is there a formal programme providing partial leniency for parties that cooperate after an immunity application has been made? If so, what are the basic elements of the programme? If not, to what extent can subsequent cooperating parties expect to receive favourable treatment?

An undertaking applying for leniency by submitting the report on the cartel agreement and material evidence after the first-in may apply to SAMR or PMRD for mitigation. SAMR or PMRD issues a written receipt to the undertaking specifying the list of materials and the time it was received.


Going in second

31 How is the second cooperating party treated? Is there an 'immunity plus' or 'amnesty plus' treatment available? If so, how does it operate?

The mitigated rates for fines for the second and following applicants are:

• 30 per cent to 50 per cent for the second applicant;

• 20 per cent to 30 per cent for the third applicant; and

• no more than 20 per cent for each subsequent applicant.

 

There is no 'immunity plus' or 'amnesty plus' treatment under the AML. If an undertaking in one anti-trust investigation reports information about another anti-trust violation occurring in a separate industry, it may not get additional benefits from SAMR or the PMRD because the authority may not have enough enforcement resources to investigate the reported conduct in the other industry and cannot prove the truthfulness of such reports. However, if another anti-trust investigation is initiated based on such a report, the reporter will benefit from the leniency application in the separate anti-trust investigation and may be eligible for benefits in the current anti-trust investigation.

 

Approaching the authorities

32 Are there deadlines for initiating or completing an application for immunity or partial leniency? Are markers available and what are the time limits and conditions applicable to them?

The deadlines for initiating or completing an application for immunity (ie, full leniency or amnesty) or partial leniency is the issuance of the prior notification of the administrative penalty.

Undertakings participating in a cartel agreement can apply for leniency before SAMR or PMRD initiates an anti-trust investigation. They can also apply for leniency after the initiation of an anti-trust investigation but before the prior notification of the administrative penalty.


The marker system for the first-in

The marker system is detailed in the Leniency Guidelines. For the first applicant that applies for leniency by submitting the report on the cartel agreement and material evidence, SAMR or the PMRD shall issue a written receipt to the applicant specifying the time of receipt and a list of materials. This written receipt is an official document to prove the chronological order of the leniency application. The written receipt will not be issued to the first applicant if the report submitted does not meet the requirements of the Leniency Guidelines.

If the first applicant submits a report that meets the requirements of the Leniency Guidelines, but temporarily cannot provide complete material evidence when it applies for leniency, SAMR or the PMRD may register the date of the report and will issue a written receipt if the undertaking submits all necessary supplemental materials within the period specified by the authority. This registration is the marker and the written receipt issued by SAMR or PMRD will show the date on which it received the report.

If the undertaking fails to supplement the material evidence within the specified period (generally no longer than 30 days, and this can be extended to 60 days under special circumstances), SAMR or PMRD will cancel its registration qualifications, and the first-in will have lost its marker.

After the first-in is disqualified from registration, it can still supplement the material evidence and apply for immunity if there are no follow-up leniency applicants. If other undertakings have already applied for leniency, the first-in whose registration qualification has been disqualified may apply for mitigation.

Normally, the marker is made in written. In certain cases, the leniency application can be made orally through a dictation in SAMR to reduce the risk of disclosure.


Cooperation

33 What is the nature, level and timing of cooperation that is required or expected from an immunity applicant? Is there any difference in the requirements or expectations for subsequent cooperating parties that are seeking partial leniency?

To obtain full immunity, the undertaking as a party to a cartel agreement shall be first-in and voluntarily report the circumstances of its cartel activities and provide 'material evidence' that can help SAMR or PMRD to start the investigation or to make the final decision.

In addition, pursuant to the Leniency Guidelines, the applicants should also fulfil the following obligations:

• the suspected cartel arrangements must be stopped immediately after the application for leniency;

• the undertaking must cooperate promptly, continuously, comprehensively and sincerely with the investigation of SAMR or PMRD;

• the undertaking must properly preserve and provide evidence and information, and must not conceal, destroy or transfer evidence or provide false materials and information;

• the application for leniency from SAMR or PMRD must not be disclosed without the consent of SAMR or PMRD; and

• not engage in any other conduct that may affect the antitrust investigation.


The subsequent applicants are expected to do the same to obtain partial leniency.

 

Confidentiality

34 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection applicable to subsequent cooperating parties? What information will become public during the proceedings and when?

According to the Leniency Guidelines, the report, documents and other materials submitted by the undertaking in applying for leniency shall not be disclosed to the public without the consent of the undertaking, and no entity or individual has the right to access such information.

In practice, in order to attract more leniency applications, SAMR and PMRDs will not disclose the documents or materials provided by the leniency applicants to any third party. No other agencies, organisations or individuals can obtain access to such information.

The level of confidentiality protection applicable to subsequent cooperating parties is the same as to the first-in.

In practice, SAMR or PMRDs keep the identity of the leniency applicants confidential during investigations. However, the applicants' identities will be revealed in SAMR or the PMRD's final decision. Usually, SAMR or the PMRD will publish the final penalty decisions and the decisions of exemption from penalties at the end of an investigation, which will disclose the leniency applicants' identities. For example, in the Zhejiang Insurance Companies Cartel case (2013), NDRC published its penalty decisions and the decision of exemption from penalties on its website and disclosed the identities of leniency applicants.


Settlements

35 Does the investigating or prosecuting authority have the ability to enter into a plea bargain, settlement, deferred prosecution agreement (or non-prosecution agreement) or other binding resolution with a party to resolve liability and penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements?

The Guidelines on the Undertakings' Commitments in Antitrust Cases (the Commitments Guidelines) was issued by the Anti-monopoly Commission in 2019 and published in June 2020. According to the Commitments Guidelines, SAMR or PMRD may accept commitments from undertakings in which the undertakings undertake or commit to eliminating anti-competitive effects of the infringing conduct within a period approved by the authority.

The commitment is, in general, a unilateral conduct made by the undertaking under investigation. However, since the content of the commitments should be evaluated and discussed with SAMR or the PMRD before the decision of the suspension of the investigation, a settlement negotiation could be conducted. The process of settlement negotiation is:

• timely filing of the application to suspend the investigation, together with the initial commitments to establish the foundation of the settlement negotiation between the undertaking and SAMR or the PMRD;the undertaking may negotiate with SAMR or PMRD regarding the content of the commitments and address all concerns of the authority; and

• if SAMR or PMRD, after considering the subjective attitude of the undertaking towards the cartel, the nature of the cartel, its duration, its consequences, its social impact, the measures committed by the undertaking and their expected effects, holds that the facts are clear, and the committed measures are sufficient to eliminate the effects caused by the cartel arrangements, SAMR or the PMRD may decide to suspend the investigation based on the commitments.

Price-fixing, restricting production or sales volume, and dividing the market cannot be settled by commitments.

In addition, if SAMR or PMRD has identified and verified the cartel agreement after the investigation, it will no longer accept applications for the suspension of the investigation proposed by the undertaking.

If the cartel arrangements have affected the legitimate rights and interests of another unspecified majority of undertakings, consumers, or the public interest, SAMR or PMRD may solicit public opinions on the commitment measures proposed by the undertaking under investigation. The time for soliciting opinions is generally no less than 30 days.

The investigation can be terminated if the undertaking performs its commitments within a time limit designated by SAMR or the PMRD. However, it can be resumed, if:

• the undertaking fails to perform its commitments;

• a major change has occurred which is relevant to the grounds for the settlement; or

• the settlement was based on incomplete or inaccurate information provided by the undertaking.


Corporate defendant and employees

36 When immunity or partial leniency is granted to a corporate defendant, how will its current and former employees be treated?

There are no administrative or criminal penalties imposed on employees under the AML, unless they obstruct the investigation. Since the current and former employees have no liability under the AML, there is no immunity or partial leniency program for them.


Dealing with the enforcement agency

37 What are the practical steps for an immunity applicant or subsequent cooperating party in dealing with the enforcement agency?

Before applying for leniency, the undertaking may communicate with SAMR or a PMRD anonymously or using its real name, either orally or in writing.

During the whole process of the antitrust investigation, an immunity applicant or subsequent cooperating party must cooperate with the investigation promptly, continuously, comprehensively and sincerely.

 

DEFENDING A CASE

Disclosure 

38 What information or evidence is disclosed to a defendant by the enforcement authorities?

Usually, the undertaking under investigation has very limited access to the case information during the investigation. State Administration for Market Regulation (SAMR) or the Provincial Market Regulatory Department (PMRD) may disclose information or evidence to the undertaking under investigation at its discretion. In addition, SAMR and PMRDs are required to issue a prior notice for administrative penalties to the undertaking under investigation before formally making a decision. The prior notice for administrative penalties includes the basic facts found by SAMR or the PMRD.

In Calcium Gluconate API (2020), Shandong Kanghui Medicine (Kanghui), Weifang Puyunhui Pharmaceutical (Puyunhui) and Weifang Taiyangshen Pharmaceutical (Taiyangshen) were pharmaceutical distributors in China. They purchased and distributed calcium gluconate API (active pharmaceutical ingredient) for injection from August 2015 to December 2017. SAMR found that they held a dominant position in China's sales market for calcium gluconate API for injection and had abused their dominance by selling products at unfairly high prices and imposing unreasonable trading conditions on clients. SAMR issued a penalty decision against them in April 2020. The total fines plus the confiscation of illegal earnings amounted to RMB 325.5 million yuan – the largest penalty imposed on API producers and the overall pharmaceutical industry in China to date.

Before issuing the penalty decision, SAMR sent a prior notice to the companies outlining the details of its planned decision as well as their legitimate rights to make statements, arguments or to apply for hearings. Kanghui applied for a hearing, which was conducted on 8 January 2020. During the hearing, not all of the evidence collected from the manufacturers or from dozens of calcium gluconate injection manufacturers was provided to the companies for cross-examination by SAMR due to reasons of confidentiality.

This case indicates that when challenging SAMR or PMRD's penalty decision in administrative litigation, administrative review or hearing before the decision, the undertaking under investigation may not gain access to SAMR's or PMRD's complete case files.


Representing employees

39 May counsel represent employees under investigation in addition to the corporation that employs them? When should a present or past employee be advised to obtain independent legal advice or representation?

There are no administrative or criminal penalties imposed on employees under the Anti-Monopoly Law of China (AML), unless they obstruct an investigation. But the law does not prohibit counsel from representing employees as well as their corporation, provided there is no conflict of interest.


Multiple corporate defendants

40 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated?

Affiliated companies normally do not require separate representation. For instance, in a cartel investigation, both the parent company and its subsidiaries are involved. The counsel can represent them all to defend the case.

For multiple corporate defendants which are not affiliates, there could be a conflict of interest for counsel to represent all of them in a cartel investigation. For instance, when all the parties want to apply immunity, there is no way to compromise. Therefore, it is not advisable for a counsel to represent multiple corporate defendants in a cartel investigation.

 

Payment of penalties and legal costs

41 May a corporation pay the legal penalties imposed on its employees and their legal costs?

There are no administrative or criminal penalties imposed on employees under the AML, unless they obstruct the investigation. If it is the latter, the company could pay the legal costs or financial penalties imposed on that employee, whether former or current, as no rules or regulations prevent the company from doing so. In practice, the company will not pay the fines to the authority directly on behalf of its employees. The employees will pay the fines from his or her personal account and the company will indemnify such losses by paying the employees for the same amount.


Taxes

42 Are fines or other penalties tax-deductible? Are private damages payments tax-deductible?

According to the Corporate Income Tax Law (2018), penalties, fines and losses on the confiscated property may not be deducted when computing the taxable amount of income.

According to the same law costs, expenses, taxes, losses and other reasonable expenditure (the necessary and normal expenditure which complies with the norms of production and business activities and which should be included in the profit and loss in the current period or in the relevant asset costs) incurred in direct relation to income received by an enterprise may be deducted when computing the taxable amount of income. Private damages payments are not necessary and normal expenditure which complies with the norms of production and business activities, therefore cannot be deducted when computing the taxable amount of income.


International double jeopardy

43 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in other jurisdictions taken into account?

SAMR and PMRDs do not recognise a principle of international double jeopardy. Another jurisdiction may penalise the undertaking under investigation by imposing fines. However, this will not prevent SAMR or PMRD from investigating the cartel activities and imposing fines in China.

The purpose of the damages in private anti-trust litigation is to compensate for the losses caused by the monopolistic conduct. If the plaintiff already received damages or amounts paid in settlements from the defendant in civil cases in other jurisdictions, such amount should be deducted from the damages in the civil case in China to avoid double recovery by the plaintiff. In short, in private damage claims, the overlapping liability for damages in other jurisdictions may be taken into account.


Getting the fine down

44 What is the optimal way in which to get the fine down?

Under article 15 of the AML, the cartel prohibition rules under the AML are not applicable if undertakings can prove the following:

1 At least one of the following public interests or efficiencies can be

realised through the cartel arrangement:

• advancing technology or researching and developing new products;

• improving product quality, lowering cost, increasing efficiency, unifying specifications and standards, or implementing a division of labour based on specialisation;

• improving the operation efficiency and competitiveness of small- and medium-sized undertakings;

• realising public interests such as energy conservation, environmental protection, and rescue and relief efforts;

• alleviating problems related to a serious drop in sales or obvious overproduction during an economic downturn;

• protecting legitimate interests during foreign trade or foreign economic cooperation; or

• other circumstances specified by laws or the State Council;

2 The specific form and effect of the cartel arrangement realises the public interests or efficiencies; and

• the causation between the cartel arrangement and the public interests or efficiencies can be shown; and

• the cartel arrangement is necessary in order to realise the public interests or efficiencies;

3 The cartel arrangements do not seriously restrict competition in the relevant market.

4 The cartel arrangements enable consumers to share the benefits therefrom, such as lowering prices, improving quality or introducing new types of products into the market. In addition to the leniency program and commitment negotiation, another effective way to reduce the fine is for the undertaking to negotiate with the relevant authority and proof that:

• it was coerced by other undertakings to implement the cartel;

• it was forced or coerced by administrative authorities to implement the cartel;

• it cooperated with SAMR or a PMRD and made a meritorious performance;

• it took the initiative to eliminate or mitigate the harm and consequences of the cartel;

• it voluntarily provided relevant evidence of other undertakings' violation of the AML;

• it neither played a leading role in cartel nor coerced other undertakings to implement the cartel;

• it neither committed multiple examples of monopolistic conduct nor violated the AML in the past;

• the duration of the cartel's existence was very short; and

• it has stopped taking part in cartel activities.


UPDATE AND TRENDS

Recent cases

45 What were the key cases, judgments and other developments of the past year?

The glacial acetic acid API cartel investigation

Glacial acetic acid is used in the production of hemodialysis concentrate for the treatment of advanced kidney failure and uremia. Chengdu Huayi, Sichuan Jinshan and Taishan Xinning are three undertakings that supply glacial acetic acid active pharmaceutical ingredients (API) in China. The three undertakings agreed to raise the price for glacial acetic acid API, which resulted in a hike in the price from 9.3 yuan per kilo to 28 yuan per kilo or 33 yuan per kilo. In December 2018, the SAMR fined the three undertakings 4 per cent of their turnover for the preceding year (the year before the investigation is launched), and confiscated the illegal earnings.


The Tianjin port yard cartel and leniency application

Twenty-seven undertakings operating container yard services at Tianjin port discussed increasing and adjusting the comprehensive surcharge and unloading fees from 2010. Ten of these undertakings no longer exist or are in operation. Sixteen of them were fined by the Tianjin Municipal Development and Reform Commission (the Tianjin DRC) at 2 per cent to 5 per cent of their turnovers in the preceding year because of the cartel arrangements.

Tianjin Penvavico Logistics was exempted from the fines because it was the first to file a leniency application, actively cooperated with Tianjin DRC and took the initiative in stopping the illegal activities.

Tianjin Keyun International Logistics was the second to file a leniency application, and as a result its fine was halved from 5 per cent to 2.5 per cent of its turnover in the preceding year.


Regime reviews and modifications

46 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

SAMR solicited public comments on a Draft of Amendments to the AntiMonopoly Law of China (the Draft AML) in January 2020. The Draft AML is still subject to consultation and further review by China's administrative and legislative bodies. While there is no fixed timetable for formal adoption, the Draft AML could be passed by the National People's Congress as early as 2021 if the remaining process runs smoothly.

The proposals contained in the Draft AML include increasing fines against cartel arrangements and changes to the AML to deal with 'hub and spoke' arrangements.

The Draft AML proposes increasing fines for cartel arrangements and changes to the AML to allow for 'hub and spoke' arrangements to be investigated and dealt with.


Increasing fines against cartel arrangements

The Draft AMP proposes the following:

• a new fine applied to undertakings found to be organising or facilitating others to reach cartel agreements of 10 per cent of its revenue for the previous year;

• the fine for trade associations organising or facilitating others to reach cartel agreements to be increased from 500,000 yuan to 5 million yuan;

• the fine for agreeing to a cartel arrangement that is not yet implemented to be increased from 500,000 yuan to 50 million yuan; and

• a new fine applied to undertakings that agree to a cartel arrangement, but have no revenue for the previous year of 50 million yuan.


Hub & spoke collusion

In a hub and spoke collusion, the common supplier is the 'hub', while the distributors are the 'spokes'. The hub facilitates the coordination of competition between the spokes and there is no direct contact between the spokes. In this way, a cartel can be achieved based on indirect communication between the cartel's horizontally aligned members.

The AML in its current form is unable to deal with such an arrangement, as it only applies to competing undertakings and lacks relevant provisions to deal with an undertaking that is not a competitor to a cartel's parties but plays an important role in it. The Draft AML proposes extending the scope of investigations and penalties for monopoly agreements to include undertakings that organise or facilitate other undertakings to reach cartel agreements.


Coronavirus

47 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

On 5 April 2020, SAMR issued the Announcement on Anti-monopoly Enforcement to Support Combating Pandemic and Restarting Economy (the Announcement), which is aimed at facilitating efforts to combat the covid-19 pandemic and restart China's economy by exempting the following agreements among competitors from liability under the AML:

• improving technologies, efficiency, public interest and consumer protection (eg, joint R&D agreements in the fields of medicines, vaccines, testing technology, medical equipment and protective equipment).

• unifying specifications and standards, or implementing a division of labour based on specialisations to improve product quality, reduce costs and increase efficiency;

• realising public interest through assisting rescue and relief efforts; and

• improving the operation efficiency and competitiveness of small and medium-sized undertakings.


In addition, to create a fair competitive market environment to help combat the pandemic, restart the economy, and effectively protect consumer interests, SAMR tightened its antitrust enforcement of undertakings that manufacture and distribute masks, medicines and medical equipment public utilities (eg, water, electricity and gas suppliers) and businesses closely related to people's livelihoods.

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