Institutional and legislative reforms signal stronger antitrust enforcement
China has set up a new National Anti-monopoly Bureau and published an updated draft amendment to the Anti-Monopoly Law.
On 18 November 2021, China's National Anti-monopoly Bureau (AMB) was established as the central-level antitrust regulator. The AMB consists of three departments in charge of competition policy cooperation, antitrust enforcement against anti-competitive behaviors and merger review respectively. There are 3 to 5 divisions under each department responsible for different work-streams.
Compared with its predecessor, the anti-monopoly bureau of the State Administration for Market Regulation, the AMB has been elevated to a vice-ministerial level central government authority. It is likely that this will allow for an increase in staffing and resources. During the AMB inauguration, the leadership emphasized that antitrust enforcement in the areas of platform economy, technology innovation, data security, and daily necessities for consumers would be a key priority.
On 23 October 2021, China published the latest proposed amendments to the Anti-Monopoly Law for public comments, which set out:
- tougher penalties, including administrative fines for individuals, potential criminal liability, and significantly higher fines for procedural violations;
- introduction of a 'stop-the-clock' mechanism for merger reviews;
- possibility of safe harbors for certain types of non-hardcore anti-competitive conduct;
- possible exemptions/defenses to the SAMR's previous hardline stance against resale price maintenance;
- codifying certain categories of illegal conduct for online platforms and building on China's prior work in this area; and
- a new public interest litigation mechanism initiated by People's Procuratorates.
China's ongoing institutional and legislative reforms in antitrust law signifies intensifying antitrust enforcement and indicates that antitrust compliance continues to be one of the top priorities for business operation in China.
For more information on the proposed amendments to the PRC Anti-monopoly Law, please see our client alert.
China releases two additional antitrust guidelines
The API guidelines feature a "to-don't" list for the API sector, and the overseas compliance guidelines are tailored for antitrust compliance programs of Chinese businesses overseas.
On the same day as the institutional reform (18 November 2021), China published two new antitrust guidelines, namely the Antimonopoly Guidelines in the Field of Active Pharmaceutical Ingredients ("API Guidelines") and the Guidelines for Overseas Antitrust Compliance of Undertakings ("Overseas Compliance Guidelines").
API, as an important raw material for pharmaceutical products, has become one of the top priorities of China's enforcement agenda in recent years. The API Guidelines address a number of common issues relating to the API sector based on the authority's past enforcement experience, including cartels in disguise as joint production, procurement, commercialization or bidding arranges; exchange of competitively sensitive information; hub-and-spoke types of anti-competitive arrangements; as well as collective abuse of dominance. The Guidelines act a helpful and practical reference guide for pharmaceutical companies' antitrust compliance in China.
Compared with the Anti-Monopoly Compliance Guidelines for Business Operators released in 2020, the Overseas Compliance Guidelines are designed for Chinese companies going abroad instead of business operators' activities in China. The aim of the Guidelines is to increase Chinese companies' awareness of overseas antitrust laws and to help establish a robust antitrust compliance program for their overseas businesses.
See our previous client alerts on antitrust compliance guidelines.
Merger control enforcement remains active in China
This past quarter has witnessed 45 failure-to-notify cases and two conditional approval cases.
Enforcement focus has not only stayed on the digital economy, but has also expanded to other sectors, such as auto parts and property management. However, the number of cases remains limited and the fines in these cases were RMB 300,000 (approx. USD 47,131), less than the fines in cases involving online platform operators, where the highest fine of RMB 500,000 (approx. USD 78,551) for failure to notify was imposed. As such, while the digital economy continues to dominate the antitrust agenda, there has been an upward trend of antitrust enforcement in other sectors. China has been intensifying the crackdown on procedural violations since late 2020, in particular those involving online platform operators with VIE structures.
The China antitrust regulator has also shown a continuous willingness and preference to impose behavioral remedies to sustain a degree of market competition and supply chain stability. Notably, there were two cases (both horizontal merger cases) which obtained conditional approvals in China. In one horizontal merger case in the machinery sector, the AMB imposed a series of behavioral remedies in order to maintain reliable and steady supply chain to Chinese customers. Whereas in the other horizontal merger case in the semiconductor sector, instead of imposing structural remedies (e.g., business/assets divestment), the merged entity was required to help a third party competitor's entry into the relevant market and to continue to expand capacity.
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