China’s new competition law
Steve Yu - Senior Lawyer, Eversheds LLP
What is the significance of the new Chinese anti-monopoly law?
The new law is the first ever comprehensive competition law in China. Adopted on 30 August 2007, it is the culmination of 13 years of legislative effort. It will come into force on August 1 2008, just a few days before the start of the Beijing Olympic Games.
What subjects does the new law cover?
Like competition laws in many other jurisdictions, China’s anti-monopoly law (AML) primarily addresses three key areas: monopoly agreements, abuse of dominant market position, and merger control. The AML is roughly in line with international competition law standards, and is analogous to the EU model in many aspects.
Are there any aspects of the new law that are uniquely Chinese?
The AML also includes a chapter to regulate “administrative monopoly conduct” which is rare in competition law elsewhere.
On the one hand, this represents an intention of the Chinese government to regulate a long-term problem in China’s economy, where government power has been used routinely to advance the interests of state-owned business. One the other hand, the new law appears to have granted legitimacy to the monopoly position of State- owned enterprise in certain industries. This occurs where State ownership is deemed to be crucial to national security. As a result, it may be optimistic to assume that foreign business will soon be able to compete on a level playing field with their domestic counterparts in these industries.
What penalties are attached to breaches of the law?
The AML states that companies implementing prohibited monopoly agreements or abusing their dominant market position will have their illegal gains confiscated by the antitrust enforcement agency. They can also be issued penalties, up to a value of 10 per cent of their sales for the previous year.
Compared with the earlier drafts of the new law, the adopted AML has reduced the penalty against unimplemented monopoly agreements from RMB2 million (approx US$ 0.25 million) to RMB 0.2 million (approx US$25 thousand). The final draft also decided against giving the antitrust enforcement authority the power to freeze a violating company’s bank account. Together, these two concessions mean that the penalties against unimplemented monopoly agreements are likely to be insufficient to create any real deterrentce.
The AML does not impose personal criminal sanctions for directors and executives involved in cartels.
How should in-house counsel respond to this new law?
There are a few months left before this new law becomes effective. In-house counsel need to place close attention to China’s new and aggressive antitrust legal regime. Substantial fines and damages claims are now a real possibility. It could be a costly oversight not to take China’s new antitrust law seriously.
To prepare for the new antitrust law, it is advisable to take proactive and preventive approaches from now on to identify and manage the antitrust risks of your business in China, including the exercise of internal antitrust audits for your China subsidiaries. With the help of outside antitrust counsels, this will help identify areas of greatest risk under the new antitrust regime, and prioritise further work to remove or reduce these risks.
In addition, competition law is a fast- changing legal regime in China. In the coming months, a number of new AML implementing rules and guidance notes will be adopted. A new Anti-Monopoly Commission will soon be created, and the institution and allocation of power amongst the antitrust enforcement agenc(ies) will be decided upon by the State Council. Corporate counsel should keep a sharp eye on these developments.
Last updated -3 April 08