New amendments to the China Anti-Monopoly Law will expand the legal framework for authorities to pursue certain types of anti-competitive behavior by companies and administrative agencies. New additions include prohibitions on the use of technology by platform companies and increased fines for violations. The amendments have also triggered changes to a series of supporting provisions, which will help authorities implement the law. We discuss the latest changes to the law and how they will impact large companies in China.
On June 24, 2022, the Standing Committee of the National People’s Congress (NPCSC), China’s legislature, released the final version of the revised Anti-Monopoly Law (AML). The updated law, which comes into effect on August 1, 2022, makes several major changes and additions, including prohibiting the use of certain technology to engage in anti-competitive behavior, raising the maximum fines for violations, and curbing abuse by administrative organs and organizations.
Shortly after the publication of the revised AML, the State Administration of Market Regulation (SAMR) released six sets of draft provisions that have been updated to align with the changes in the AML. The six provisions are:
These provisions will assist in the implementation of the AML after they have passed and come into effect.
The new changes to the AML give more legal teeth to the law underpinning China’s anti-monopoly legislative framework, and will significantly impact large companies and in particular – but not exclusively – large technology and platform companies.
Below we have listed some of the major changes to the AML.
(1) Fixing the price for resale of goods to a third party;
(2) Limiting the minimum price for resale of goods to a third party;
(3) Other monopoly agreements identified by the anti-monopoly law enforcement agency of the State Council.
The agreements stipulated in Items 1 and 2 of the preceding paragraph shall not be prohibited if the business operator can prove that it does not have the effect of eliminating or restricting competition.
Operators who can prove that their market share in the relevant market is lower than the standards set by the anti-monopoly law enforcement agency of the State Council and meet other conditions set by the anti-monopoly law enforcement agency of the State Council shall not be prohibited.
“The agreements stipulated in Items 1 and 2 of the preceding paragraph shall not be prohibited if the business operator can prove that it does not have the effect of eliminating or restricting competition.”
“Operators who can prove that their market share in the relevant market is lower than the standards set by the anti-monopoly law enforcement agency of the State Council and meet other conditions set by the anti-monopoly law enforcement agency of the State Council shall not be prohibited.”
(1) Selling commodities at an unfairly high price or buying commodities at an unfairly low price;
(2) Selling commodities below cost without justifiable reasons;
(3) Refusing to trade with the counterparty without justifiable reasons;
(4) Without justifiable reasons, restricting the counterparty to trade only with it or with a business operator designated by the operator;
(5) Bundling commodities without justifiable reasons, or attaching other unreasonable trading conditions to the transaction;
(6) Implementing differential treatment in terms of transaction price and other transaction conditions for counterparties with the same conditions, without justifiable reasons;
(7) Other acts of abusing market dominance as determined by the anti-monopoly law enforcement agency of the State Council.
Operators with a dominant market position may not use data or algorithms, technology and platform rules to abuse their dominant market position in the means mentioned in the previous clauses.
“Operators with a dominant market position may not use data or algorithms, technology and platform rules to abuse their dominant market position in the means mentioned in the previous clauses.”
Where the consolidation of business operators does not reach the standards for reporting set by the State Council, but there is evidence that the consolidation has or could have the effect of eliminating or restricting competition, then the anti-monopoly law enforcement agency of the State Council can require a declaration from the operator.
If the operator does not make the declaration in accordance with the two above two clauses, then the anti-monopoly law enforcement agency of the State Council shall carry out an investigation.
“Where the consolidation of business operators does not reach the standards for reporting set by the State Council, but there is evidence that the consolidation has or could have the effect of eliminating or restricting competition, then the anti-monopoly law enforcement agency of the State Council can require a declaration from the operator.
If the operator does not make the declaration in accordance with the two above two clauses, then the anti-monopoly law enforcement agency of the State Council shall carry out an investigation.”
From the day when the circumstance under which the suspension of the calculation of the review period is eliminated, the length of the review period will continue to be calculated, and the anti-monopoly law enforcement agency of the State Council shall notify the operator in writing.
If a business operator violates the provisions of this Law by reaching and implementing a monopoly agreement, the anti-monopoly law enforcement agency shall order it to stop the illegal act, confiscate the illegal income, and impose a fine of between 1% and 10% of the sales volume of the previous year. If there are no annual sales, a fine of up to RMB 5 million [US$745,378] shall be imposed; if the monopoly agreement reached is not implemented, a fine of up to RMB 3 million [US$447,227] may be imposed. If the legal representative, main responsible person, and personnel directly responsible for the operator are personally responsible for reaching a monopoly agreement, a fine of up to RMB 1 million [US$14,9075] may be imposed.
Where a business operator organizes for other business operators to reach a monopoly agreement or provides substantial assistance for other business operators to reach a monopoly agreement, the provisions of the preceding paragraph shall apply.
Where a business operator voluntarily reports to the anti-monopoly law enforcement agency the relevant situation of reaching a monopoly agreement and provides important evidence, the anti-monopoly law enforcement agency may reduce or exempt the punishment of the business operator as appropriate.
If an industry association violates the provisions of this law and organizes operators in its own industry to reach a monopoly agreement, the anti-monopoly law enforcement agency shall order it to make corrections, and may impose a fine of up to RMB 3 million [US$447,227]; if the circumstances are serious, the social organization registration authority may revoke the registration according to law.
Raised the fine for “if the monopoly agreement reached is not implemented” to “up to RMB 500,000” (US$74,537) to “up to RMB 3 million” (US$447,227).
Added: “If the legal representative, main responsible person, and personnel directly responsible for the operator are personally responsible for reaching a monopoly agreement, a fine of up to RMB 1 million [US$14,9075] may be imposed.”
Added new paragraph: Where a business operator organizes other business operators to reach a monopoly agreement or provides substantial assistance for other business operators to reach a monopoly agreement, the provisions of the preceding paragraph shall apply.
Raised the fine for “If an industry association violates the provisions of this law and organizes operators in its own industry to reach a monopoly agreement” from “up to RMB 500,000” (US$74,537) to “up to RMB 3 million” (US$447,227).
Added “If it does not have the effect of eliminating or restricting competition, a fine of up to RMB 5 million [US$745,378] will be imposed.”
If an operator engages in monopolistic behavior and damages public interests, the people’s procuratorate at the level of a city with municipal districts may file a civil public interest lawsuit with the people’s court in accordance with the law.
The amended AML increases the liabilities for companies that violate the law and expands the tools that antitrust authorities have at their disposal for pursuing antitrust cases.
First of all, the amendment raises the maximum fines for violations for both companies and individuals responsible. Fines were raised for the following anti-competitive behavior, as stipulated in articles 56, 58, and 62:
The fine for “abuse of dominant market position” stipulated in Article 57 remains unchanged at between 1 and 10 percent of the previous year’s sales, as well as confiscation of all illegally obtained income.
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For serious violations, the fine has been increased to “two to five times” that of the fine for each given violation, meaning that companies could be liable for up to RMB 25 million (US$3.7 million) or five times 10 percent of the total annual sales of the previous year for particularly egregious violations.
In addition to the increased fines, a new article, Article 64, specifically stipulates that violations of the AML will be added to a company’s credit record and will be publicized. This addition aligns with new regulations on China’s corporate social credit system, which seeks to improve transparency and accountability for unethical or illegal behavior by corporations and social entities.
The potential consequences for having a violation added to a company’s record include suspensions of operations and production, exclusions from government purchasing schemes, and exclusions from incentive schemes and preferential policies. In addition, being publicly named and shamed could harm the company’s image in the eyes of consumers, clients, and business partners.
Finally, the amended AML also gives the local procuratorates the right to initiate anti-monopoly civil public interest litigation by filing a lawsuit with the people’s court, should the monopolistic behavior damage “public interest”.
In addition to raising the stakes for companies, the new AML also aims at curbing abuse by anti-monopoly authorities. The new Article 40 explicitly prohibits administrative offices from hindering companies from entering a market or imposing unequal treatment, or otherwise limiting competition.
This move is likely partly an effort to curb local protectionism, where local governments restrict or prevent companies from other regions from entering or expanding in their jurisdiction in order to give local companies or organizations a competitive advantage.
Another new article, Article 54, also enables anti-monopoly enforcement agencies to investigate suspected administrative abuse by these institutions.
In addition, new language has been added to the confidentiality obligations of anti-monopoly enforcement agencies and their staff. The AML now requires anti-monopoly agencies to maintain confidential any “personal privacy or personal information” gleaned during the course of their activities, in addition to business secrets. This reflects the requirements of the Personal Information Protection Law (PIPL), which came into effect on November 1, 2021. Similar to Europe’s GDPR, the PIPL requires companies to ensure the security of personal information gathered from users or customers to prevent leaks, tampering, or misuse of personal information.
The amended AML includes new articles, including Article 9 of the General Principles, specifically banning companies from abusing their dominant market position by using technological means, such as data or algorithms, as well as platform rules, to restrict or eliminate competition or engage in other anti-competitive behavior. This article is widely acknowledged as targeting large tech companies, in particular online platforms.
The addition of this article, and other related clauses, will give China’s anti-monopoly authorities a stronger legal standing to bring antitrust cases against large platform companies.
A major way in which tech and platform companies engage in monopolistic behavior is the use of big data and algorithms to automatically fix the prices of goods and services for different customers. The Anti-monopoly Guidelines for the Platform Economy, released in February 2021, also prohibits this type of activity, but it has been difficult to implement in practice. Although it is still unclear how the anti-monopoly authorities will enforce the prohibition on this type of activity, the inclusion in the AML will give companies less legal room to hide in the event of an antitrust review or lawsuit.
The amended AML has added a clause enabling the anti-monopoly authorities to require a declaration and antitrust review of companies even if they don’t meet certain standards set for a review (determined by annual turnover), if “there is evidence that the consolidation has or could have the effect of eliminating or restricting competition”.
This addition is likely in response to cases where companies have been able to avoid an antitrust review due to being under the turnover threshold, despite the consolidation having a significant anti-competitive effect. This was the case in 2016 when the Chinese ride-hailing giant Didi Chuxing acquired the Chinese portion of Uber’s business. The company was able to not make a declaration to the antitrust authorities as its revenue did not meet the threshold for review. However, Didi’s acquisition of Uber in China instantly eliminated the only major competitor at the time and gave the company a significant market lead.
The new addition will therefore give the authorities a legal basis for requiring an antitrust review even in cases where the companies technically fall below the requirements for a review.
Another amendment that could greatly impact the leverage of large tech companies, and large companies in general, comes not from the amended AML itself, but in one of the auxiliary regulations. The updated draft version of the Provisions of the State Council on the Standards for Declaration of Consolidation of Business Operators (“the provisions”), released on June 27 by SAMR, will raise the bar for approval of M&A deals for large companies if passed in their current form.
The provisions were first passed in 2008 and last revised in 2018.
In the provisions, “consolidation” is defined as when:
Under the provisions, companies are required to make a declaration of the consolidation to the anti-monopoly law enforcement agency of the State Council if they meet any of the following circumstances:
In both of the above cases, the financial threshold for requiring a declaration has been raised, meaning more deals will be able to go through without any declaration to the authorities, provided that both or all companies fall under the turnover threshold. In the previous version, if one of the companies in the deal had a turnover beneath the set threshold, the deal would not have to be declared.
Nevertheless, the new draft version adds a new caveat that will mean most big companies will always have to make the declaration. Specifically, the provisions state that even if the companies do not meet the financial threshold mentioned above they will still have to make the declaration if:
The above addition means that if just one of the two companies has a turnover of over RMB 100 billion, then any deal will have to be declared. This could significantly curb large companies from using their dominant positions to engage in strategic M&A to capture market share or gain an upper hand over a competitor. It also suggests that basically any deal made by a large company will have to go through an antitrust review, no matter how small it is.
On July 7, the provincial government of Zhejiang announced that the first provincial competition compliance standards for internet platform companies, titled the Internet Platform Enterprise Competition Compliance Management Specification (standards number DB33/T 2511-2022), would come into effect on August 5, 2022.
Although the provincial government has not yet released the full text of the standards, the notice published on its website stated that the standards were based on a comprehensive review of anti-competitive practices by large platform companies, such as giving preferential treatment to the company’s own products on the platforms, price-fixing for loyal customers, abuse of algorithms, and forced monopoly agreements, among others. By researching these different types of anti-competitive behavior the creators of the standards have “comprehensively sorted out the risks related to competition and compliance of platform companies” in order to clarify the key compliance requirements of platform companies.
In addition, the standards will introduce a “traffic light” system for monopoly compliance by platform companies, which under the premise of clarifying compliance requirements, will help to “leverage [platform companies’] role in optimizing resource allocation, promoting industrial upgrade, expanding consumer markets, and increasing employment”. The notice did not provide further clarification on how the traffic light system would function.
Zhejiang province is home to a thriving digital and technology industry, and the spiritual home of China’s booming e-commerce industry. According to the notice, the province is home to 310 trading platforms and over 11 million operators, accounting for nearly half of all platform operators in the country. The most notable platform company in Zhejiang is Alibaba, which is headquartered in the provincial capital of Hangzhou.
Whereas more information is required to understand how the compliance standards will be implemented and the rules they contain, they do indicate that local governments are seeking to implement their own legislation to tackle anti-competitive behavior. We therefore anticipate more local standards to be introduced, in particular in cities and regions with active internet industries, such as Shanghai, Beijing, and Guangdong.
Despite hopes and signs that the crackdown on China’s big tech is easing from a series of policies released in 2022, the revised AML appears to indicate that the government will continue to maintain a close eye on the activity of large companies, in particular platform companies. The articles prohibiting the use of technology to engage in monopolistic behavior give the legislation new teeth to take on big tech and suggest that the authorities will be looking closer at platform companies’ rules of engagement, M&A deals, and contracts with partners and third parties. Meanwhile, the draft provisions governing consolidation indicate that more large companies will be required to undergo antitrust reviews when they engage in M&A or other consolidation.
It is, however, important to note that AML functions mostly as a foundation for other regulations that will provide more detail on implementation in specific instances. It is therefore still uncertain how the law will be implemented in practice.
At the same time, more legislation on anti-competitive behavior may have a positive effect on the industry as a whole and could provide more space for smaller companies to grow. This is at the core of the AML and the supplementary provisions. The AML also appears to build in certain protections for smaller companies, such as exempting companies from the prohibition on monopoly agreements if they can prove their market share is below certain levels, as stipulated in Article 18.
Given the increased pressure on both companies and anti-monopoly authorities to limit monopolies, we expect to see more regulations targeting various behavior and more cases to be brought to the light in the coming months and years.
This article was first published on July 6, 2022 and was last updated on July 11, 2022 to reflect the latest developments.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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