An Analysis of Recent Developments in China’s Competition/Antitrust Law Sphere
The Chambers Greater China Region team analyse the companies fined for anti-competitive behaviour and new regulations that will change the competitive landscape.
A legal insight into Competition, Antitrust Law across China
The rivalry within the Chinese digital and platform economy is intensified by a small number of giant companies that dominate the market, such as Alibaba, Tencent, Meituan, Baidu, Didi and Suning. The financial strength of these famous names, combined with the massive volume of consumers who use their services daily, makes competition from other companies a rarity.
The year of 2021 has seen an undoubtedly vibrant competition law market amid many high-profile cases, investigations, and enforcements. The legal market remains in a state of change as the public awaits the first amendment of the Anti-monopoly Law in 13 years.
A second version of a draft amendment (Draft) was submitted to the Standing Committee of the National People's Congress in October 2021 for its first reading, and it indicates a more comprehensively codified regulatory framework for market participants, potentially further strengthened administrative enforcement and increased degree of penalties to those involved in monopoly activities.
Many companies in industries ranging from pharmaceuticals to the internet sector shall pay particular attention to the changes brought by the amendment and any regulatory focus shift from a corporate compliance perspective to guide their transactions and day-to-day business running.
Tightened Anti-monopoly Regulation of Digital/Platform Economy
While many industries, such as healthcare, have seen a high level of anti-monopoly enforcements over the past few years, the digital or platform economy has been the one that has really stolen the spotlight in the competition law sphere.
During Chambers research for the inaugural Chambers Greater China Region guide, market commentators were quick to note the obvious change of the sector in a competition law context.
It had been previously understood that internet conglomerates, platform companies or marketplace providers were encouraged to grow by the government and usually enjoyed preferential policies locally, that perception was no long the case, as evidenced by recent landmark enforcement investigations into platform enterprises such as Tencent, Meituan and Alibaba, showcasing the governments determination to rule out actions that eliminate or restrict competition.
In April 2021, tech giant Alibaba received the heftiest fine among Chinese companies on record - USD2.8 billion, for abuse of market dominance. Later, Tencent Holdings' proposed merger of Huya and DouYu, two major video streaming providers, was prohibited by the State Administration for Market Regulation (SAMR).
In October 2021, Chinese food delivery company Meituan was fined USD534 million for its monopoly behaviour, a fine accounting for 3% of the companys annual revenue in 2020.
Throughout the year of 2021, regulators have levied fines on a list of tech, internet and platform companies for failing to file concentration notifications arising from their mergers and acquisitions, and investments. This latest list of 43 cases was announced in late November 2021, involving famous names in the industry including Baidu, Didi and Suning.
The rule of choose one out of two is another key non-compliance issue in the digital/platform economy which was also spotted as a monopoly conduct in the cases of Alibaba and Meituan. In April 2021, internet platforms were given a month to readjust its anti-competition conducts, especially the choose one out of two practice, to create a fairer market that allows competition. See Greater China Region: China Competition/Antitrust (PRC firms).
Safe Habour Rules for Monopoly Agreements
One of the highlights that the Draft has introduced is the safe harbour rules which set out, in the case of a company can prove its market share in a specific market falls below the threshold prescribed by the regulator, the relevant provisions on unlawful monopoly agreements will not apply.
With such rules codified in the legislation, instead of in State Council Guidelines prior to that, it is expected that businesses restrictions would be relaxed to some extent. However, more procedural details need to be published in terms of how the rules can actually be applied and whether all sectors are applicable.
Increased Degree of Penalties for Violation & Non-compliance
The Draft has shown increased penalties on anti-monopoly behaviour and violation, with monetary, administrative, and personal liability consequences.
As far as merger control filing is concerned, the penalties for a concentration that restricts or eliminates competition have greatly increased from CNY500,00 to up to 10% of the violator's annual turnover of the previous year, whereas fines for a concentration that has no effect on restricting or eliminating competition, could be as high as CNY5 million, again raised from the maximum fine of CNY500,000 previously.
In the case of particularly grave violation of the law with an exceptionally pernicious impact and exceptionally grave consequences, the Draft employs an aggravated penalty clause which could lead to a fine 2-5 times the amount of a general penalty as shown above. Additionally, personal liability is new for company executives who are in charge or responsible for related violation/noncompliance.
Expanding Enforcement Authorities in the Area of Competition Law
The new State Anti-Monopoly Bureau is a recent addition to the SAMR. The deputy ministerial-level agency contains three divisions, focusing on policy coordination, investigation, and enforcement. The regulators have also been boosting the staffing to accommodate the increasing regulatory requirements and complexity of cases.
A public recruitment by the SAMR was launched with more than 30 vacancies advertised. It is reported that the number of officials within the Anti-Monopoly Bureau will rise from 40 to 150 in five years. While the digital/platform economy was at the centre of the evolving competition law market in 2021, the strengthened law enforcement team and regulatory bodies are likely to focus on a wider scope of sectors, online healthcare for instance.
These institutional changes have been generally considered as the governments emphasis on the significance to ensure fair competition practice and protect the interests of markets players, participants as well as the public.