#17052 - Chinese Competition Law - Chinese Law

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.

         1. 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

         1. Something for which it can thank the Cultural Revolution

         2. 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

         3. 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

         1. 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

         1. 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

               1. 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

         1. Commentators voice concerns that so-called non-competition factors are influencing the outcomes of investigations and reviews taken by the Chinese competition agencies.

         2. They are also worried that the AML is not being applied equally to state-owned enterprises and is being enforced in a manner that discriminates against foreign companies

         3. Another key complaint is the lack of transparency and due process in the investigation process

         4. 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

         1. 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

         2. 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

         1. Namely articles 4, 27, 28

       • A number of commentators believe that non-competition factors have influenced AML enforcement outcomes

         1. 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

         2. Mergers involving products Considered to raise such concerns

         3. 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

         1. Similarly, concerns that the AML was being enforced to achieve non-competition policy goals have been voiced in non-merger investigations where foreign companies were investigated and/or sanctioned

         2. 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,

         1. 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

         2. 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

         1. It has, indeed, been enforced against SOE's, allaying concerns that SOE's were exempt from its operation

         2. However, commentators remain critical of the low level of AML enforcement against SOE's

         3. They believe that the AML has been applied leniently or weakly against SOE's

            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

         4. 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

         5. 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.

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

         2. 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

         3. 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

         4. 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

         1. 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

         2. They also observe that purely domestic...