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Chinese Competition Law Notes

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This is an extract of our Chinese Competition Law document, which we sell as part of our Chinese Law Notes collection written by the top tier of LSE students.

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PRC Competition Law

The Political Economy of Competition Law in China
 Competition Law in China and The Importance of Context

1. Intro:
 In December 1978 the CPC made the critical decision to shift its focus from 'class struggle' to 'economic development'
 Since then, China has adopted incremental and far-reaching reforms to shift its centrally-planned economy to one that is market-based, open up its economy to foreign investment and participate in global markets.

i. China's entry into the World Trade Organization(WTO) on 11 December 2001 marked its formal integration into the global economic system
 Its economic growth has been hailed as remarkable not only for the high,
sustained rate at which it has been achieved, but also because it has been achieved with a relatively weak legal system and underdeveloped financial markets, institutions thought to be critical to economic development
 Before this happened, however, China's legal system was practically nonexistent i.
Something for which it can thank the Cultural Revolution ii.
Since the mid 90's, China has attached increasing importance to the rule of law and to establishing and improving its laws and legal institutions in order to promote and support economic reforms and the development of a market economy iii.
As part of these efforts, it enacted its first comprehensive competition law in 2007 - the Anti-monopoly Law (AML)
 The AML regulates anti competitive agreements (referred to as 'monopoly agreements'), abuses of dominant market positions, and mergers, which are together defined as monopolistic conduct i.
There are also some provisions in the AML that have been tailored to address China-specific matters such as administrative monopoly, which is the abuse of administrative power to restrict competition and includes exercises of administrative power that impede the free flow of goods within China's internal market or competition in or market entry into particular industries or sectors

2. Evolutions of the AML to date
 The development, adoption and subsequent implementation and enforcement of the Aml has garnered substantial attention and commentary from academics,
lawyers, government officials, economists, business and media outlets in China and beyond
 Generally speaking, the AML is regarded as a modern competition law that is largely consistent in form and substance with prevailing international competition law norms, and in particular the competition laws of the European Union and
Germany i.
Many note that substantive provisions in the AML are similar to provisions in EU competition law and that a number of legal doctrines from the USA
antitrust law have also been reflected in the AML

1. Xiaoye Wang and Adrian Emch,'Five Years of Implementation of
China's Anti-monopoly Law-Achievements and Challenges'(2013) 1
Journal of Antitrust Enforcement 247 at 251-4 a. Decisions under the AML also seem to take on the same language and grammar as those adopted in the USA and
Europe 2. They also note that decisions, especially merger decisions, reflect growing analytical depth and sophistication
 The AML, has nonetheless, attracted some criticism i.
Commentators voice concerns that so-called non-competition factors are influencing the outcomes of investigations and reviews taken by the
Chinese competition agencies.

ii. They are also worried that the AML is not being applied equally to stateowned enterprises and is being enforced in a manner that discriminates against foreign companies iii.
Another key complaint is the lack of transparency and due process in the investigation process iv.
Critics are also concerned about the effectiveness of the administrative enforcement nature

3. Consideration of Non-competition Factors
 The inclusion of public interest and 'the healthy development of the socialist market economy' as express objectives of the AML has been viewed as problematic by many commentators. - Article 1
 They regard these objectives as being inappropriate for competition law and contrary to international competition law norms i.
In their view, the objectives of competition law should be limited to enhancing economic efficiency and consumer welfare, and conduct should be assessed by reference to its impact on competition only ii.
Other objectives or considerations such as matter related to industrial policy or foreign investment policy, referred to as 'non-competition'
matters, lie outside the realm of CL and policy are better addressed in other laws and policies
 These are also considered too vague, meaning that it allows the AML to be enforced in a manner such that non-competition objectives such as industrial policy, the interests of the SOE's or stabilities concerns might take precedence over competition concerns such as consumer welfare and efficiency
 In addition, other provisions of the AML provide for the consideration of industrial policy, economic development and social factors i.
Namely articles 4, 27, 28
 A number of commentators believe that non-competition factors have influenced
AML enforcement outcomes i.
For merger enforcement, this issue has generally arisen in situations where a decision reached by China's Ministry of Commerce was different to that reached by other competition authorities reviewing the same merger, or where the conditions imposed by the MOFCOM on a merger appeared, in their opinion, not to be directed at addressing the stated competition concerns ii.
Mergers involving products Considered to raise such concerns iii.
red important to Chinese economic development or stability, well-known
Chinese brands, IP or sensitive or strategic industries also tend to raise such concerns
 In such cases, commentators have speculated that non-competition considerations were the reason for the divergent outcomes or perceived disconnect between the stated competition concerns and the conditions imposed i.
Similarly, concerns that the AML was being enforced to achieve noncompetition policy goals have been voiced in non-merger investigations where foreign companies were investigated and/or sanctioned ii.

Some commentators criticised the competition agencies for pursuing industrial policy and/or protectionist goals in these cases, and for setting price controls

4. Protection of State-owned Enterprises
 When the AML was first enacted, there were concerns that SOE's would be exempt from or enjoy special treatment under the AML
 Article 7 was particularly worrying,

i. which recognises and protects the state's controlling position in national economic lifeline, national security and state-granted monopoly industries and confirms that businesses in these industries must not abuse their dominance ii.
They were worried that this would give enforcement authorities too much discretion in the way that the AML is applied to SOE's

1. For example, it might justify the exemption of SOE's from the operation of the AML, or the prioritisation of industrial policies or other non-competition considerations over competition concerns where SOE's are involved
 Some of these concerns have been put to rest since the AML came into effect i.
It has, indeed, been enforced against SOE's, allaying concerns that SOE's were exempt from its operation ii.
However, commentators remain critical of the low level of AML
enforcement against SOE's iii.
They believe that the AML has been applied leniently or weakly against

1. For example, some authors point out that, although many mergers involving SOE's have been undertaken since the AML came into effect, a number of which would have reached the notification thresholds, only a few of them have been notified to the MOFCOM
for review, and with no consequences for such non-compliance iv.
There are suggestions that investigations involving SOE's may be insufficiently investigated and that rather than scantioning SOE's for engaging in anti-competitive conduct, the competition authorities are accepting commitments and terminating investigations instead v.
There are also concerns that non-competition matters, such as creating and building national champions, broader SOE reforms and industrial policy, have influenced AML outcomes where SOE's are involved.

5. Discrimination against Foreign Companies
 Concerns that the AML would be enforced against foreign companies in a discriminatory manner persisted throughout the drafting process and into enforcement.

i. These concerns initially stemmed from what some commentators considered to be the protectionist rhetoric surrounding the drafting of the

ii. Further, the insertion of Art. 31 into the AML, which provides that acquisitions of Chinese companies by foreign investors are subject to both anti-monopoly review and national security review, also caused alarm among foreign commentators iii.
Many of them believed that the inclusion of Art 31, against a backdrop of growing concerns purportedly held by the public and the CHinese government regarding foreign investment in China, increased the risk that national security concerns would seep into the anti-monopoly review process iv.
IN their view, national security concerns - the definition of which includes national economic interests in China - are political in nature and irrelevant to competition review
 Criticisms that foreign companies are unfairly targeted by the Chinese competition authorities have intensified in enforcement i.
In relation to Merger enforcement, commentators highlight that most conditionally approved or prohibited mergers have involved mergers between foreign companies and that no purely domestic mergers have been subject to conditions or prohibited ii.
They also observe that purely domestic mergers are notified much less frequently than mergers involving foreign companies
 The US-China Economic and Security Review COmmission argued that this effectively exempts such domestic mergers from the AML, which in turn disadvantages foreign companies because they are exposed to greater scrutiny and uncertainty and incur additional costs associated with anti-monopoly review i.
Commentators such as Markus Masseli and The US Chamber of Commerce also believe that some merger decisions have been motivated by protectionist, foreign investment or industrial policy concerns, such as promoting national champions

1. In particular, the decision to prohibit the Coca-Cola/Huiyuan merger,
whereby Coca-Cola proposed to acquire a well-known Chinese fruit juice brand, attracted substantial criticism for its perceived motivation of economic protectionism ii.
Those of the likes of The Economist and Gordon G. Chang

1. Are also critical of non-merger enforcement activities and believe that these have disproportionately targeted and impacted on foreign companies

2. While they acknowledge that domestic companies have been investigated and sanctioned for breaching the AML, they believe that domestic companies face lighter penalties than foreign companies and are not probed for similar violations in industry-specific investigations

3. There is also a view that foreign companies have been disproportionately targeted in high-profile investigations, with the aim of reducing prices for goods sold to Chinese consumers

4. Further, US commentators have been especially concerned that the
AML is being used to pressure foreign companies to license their IP
on terms that are favourable to CHinese licensees and to reduce their licensing fees, as well as to give potential Chinese licensee additional leverage in licensing negotiations.

6. Issues Relating to the Administrative Enforcement Structure
 Administrative enforcement responsibilities under theAML are divided among three existing ministries:

i. the MOFCOM(responsible for merger enforcement);

ii. the National Development and Reform Commission (NDRC, responsible for price-related non-mergerconduct);

iii. and the State Administration for Industry and Commerce(SAIC,
responsible for non-price-related non-merger conduct). 

The Anti-monopoly Commission was also established to organise, coordinate and guide China's competition policy
This two-tiered, divided enforcement structure has been criticised by Chinese and foreign commentators.

i. They believe that the distribution of resources and competition law knowledge, which are scarce in China,across three ministries is inefficient and administratively costly.

ii. They are also concerned that jurisdictional conflicts and inconsistent decision-making may occur if there is inadequate coordination and cooperation among the enforcement agencies where, for example,
conduct falls within the scope of both the NDRC's and the SAIC's authority,
or the competition authorities take different approaches to matters such as market definition and competition assessment.

1. In particular, the delineation of enforcement responsibility between the NDRC and the SAIC based on price-related and non-price-related conduct is criticised as being unworkable in practice.
Adrian Emch in 'Chinese Antitrust Institutions - Many Cooks in the Kitchen'

i. Criticises enforcement by pointing to cases where the price/non-price distinction has not been followed, resulting in the competition agency investigating and sanctioning conduct outside its authority, or where the distinction was observed but other conduct was left uninvestigated ii.
He has also noted there have been situations where local offices of the
NDRD and SAIC in the same province investigated similar conduct in the same industry but did not coordinate their investigations, leading to potentially divergent or conflicting outcomes
Critics also point to the lack of independence and sufficient authority of the competition agencies as limiting the effectiveness of AML enforcement.

i. Some commentators worry that the non-AML responsibilities and portfolios held by each of the competition agencies will influence their
AML enforcement decisions,especially where there is a conflict between the AML outcome and another policy outcome.

ii. Others question whether the competition agencies have sufficient administrative and political power to enforce the AML, especially against
SOEs or businesses operating in regulated industries.
There are also doubts that the AML will be effectively enforced against administrative monopolies.

i. Here, enforcement power lies with the superior authority of the administrative organ in question, and the role of the competition agency is limited to making a recommendation to the superior authority on how to handle the case under the AML.

ii. Many commentators are sceptical as to whether a superior authority will have the incentive or sufficient competition law knowledge to properly apply the AML to sanction their lower-level authority or to adequately handle administrative monopoly conduct.
To address these issues, many commentators believe that a unified,independent,
ministry-level administrative authority should be established to enforce the AML.

i. In their opinion, the enforcement authority should be a stand-alone ministry that reports directly to the State Council, free from the interference of other government authorities and authorised to administratively enforce all provisions of the AML to the exclusion of other government authorities 7. Lack of due process and transparency
 commentators have been very critical of what they perceive to be a lack of procedural fairness and transparency afforded to parties during merger reviews and non-merger investigations.
 One of the principal concerns voiced by commentators about merger review is that it is a 'black box'; that is, merging parties are not provided with sufficient information about the substance and process of merger review i.
For example, there are complaints that the MOFCOM does not communicate the concerns of consulted third parties (such as other government departments and competitors) about proposed mergers to merging parties,which means that merging parties are not given the opportunity to respond to such concerns.
 Lengthy merger reviews and delays are also cited as a major problem, although such concerns have been tempered somewhat by the MOFCOM's adoption of a simple merger review process
 The US Chamber of Commerce has also argued that the exclusion of foreign legal counsel from participating in merger review proceedings denies merging parties the right to adequate legal representation, even if local counsel are present
 Non-merger investigations by the NDRD have raised similar concerns i.
There were reports that the NDRC had; on occasion, used tactics such as forced confessions and intimidation to pressure companies to make admissions that they had breached the AML or to cooperate with investigations, even in situations where the company did not know why they were being investigated ii.
These reports have alarmed many commentators iii.
Critics have also raised concerns regarding the inability of outside legal counsel to be present at dawn raids and/or meetings with the competition agencies during the investigation process
 Concerns about due process are exacerbated by the limited transparency provided by the Chinese competition authorities in their published decisions
 Commentators argue that, despite continuing efforts made by the competition authorities to improve the transparency of decision-making under the AML, both the quantity and the quality of published decisions remains inadequate i.
Only a small percentage of merger decisions are published, and the NDRC
(unlike the SAIC, which has committed to publishing all of its AML
decisions) only releases information about some, not all, of its AML
investigations ii.
Commentators also believe that the decisions and information published by the competition authorities fail to provide sufficient detail about the competition authority's reasoning.

8. Competition law and the Relevance of Context
 Many of the concerns voiced by commentators regarding the AML relate to
China's local conditions, such as the involvement of SOE's in the economy, or provisions or arrangements that are CHina-specific and not typically found in other competition laws, such as the prohibition against administrative monopoly
 Nonetheless, the AML remains drawn from or significantly influenced by the competition laws of the EU, Germany and the US; in this sense the AML has the attributes of a legal transplant (Zheng, 'Transplanting Antitrust in China')

i. A legal transplant is the 'moving of a rule or a system of law from one country to another, or from one people to another'

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