China’s New Anti-Monopoly Law

To meet the needs of modern economic development, China’s Anti-Monopoly Law has been revised and became effective as of 1 August 2022, further protecting fair market competition and safeguarding the interests of consumers and the public. In this article we will introduce the key aspects of the new Anti-Monopoly Law.

Consolidation of Anti-Monopoly Enforcement Department
There used to be three departments within the State Council responsible for the enforcement of the Anti-Monopoly Law (the “AML”), namely the State Administration for Industry and Commerce (the predecessor of the State Administration for Market Regulation), the Ministry of Commerce, and the National Development and Reform Commission. Now, it is specified by the new Anti-Monopoly Law that the Anti-Monopoly Law Enforcement Agency of the State Council (the “Agency”), i.e. the current Anti-monopoly Bureau of State Administration for Market Regulation takes the charge.

Meanwhile, the AML stipulates that if any administrative department has the function to administer public affairs as empowered by any law or regulation, it will be subject to a fair competition review when formulating provisions on the economic activities of market players.

Regulation on Hub-and-spoke
According to Article 19 of the AML, an operator shall not organize any other operator to reach any monopolistic agreement or provide any substantive assistance for any other operator to reach any monopolistic agreement.

The collusive conduct cannot clearly be classified as either horizontal or vertical agreements. The so-called hub-and-spoke collusion generally involves retail competitors and their common supplier(s). For instance, retailers may share sensitive information not directly but through a common supplier (this practice is also called A to B to C information exchange). The common supplier can also help retailers to coordinate price increases or serve as a category captain to organize marketing decisions.

This is the first time that the hub-and-spoke collusive agreement is regulated as a separate kind of monopoly agreement in the Chinese antitrust law regime. An operator that has no vertical nor horizontal relationship with other operators will still be regulated if it organizes and substantially helps other operators to reach and implement monopoly agreements.

Specified “Safe Harbor Rule”
According to Article 18 of the AML, the agreements between operators will not be prohibited if the operators can prove that their market share in the relevant market is lower than the threshold set by the Agency and meet other conditions prescribed by the Agency.

The traits of the “Safe Harbor” provision are: (i) the “Safe Harbor” provision only applies to vertical monopoly agreements; (ii) even if it is a clear vertical agreement, it will not be prohibited as long as "the operator can prove that its market share in the relevant market is lower than the threshold set by the Agency " and "meets other conditions stipulated by the Agency "; (iii) even if the requirements of the “Safe Harbor” cannot be met, it will not be prohibited as long as the operator can prove that the relevant vertical arrangement does not have the effect of eliminating or restricting competition.

Introduction of “Stop the Clock” System
To optimize the reporting system for the concentration of business operators, the new AML specifies that the Agency may decide to suspend the calculation of the review period of the concentration of operators and notify the operator in writing if: (i) the operator fails to submit documents and materials in accordance with the provisions, resulting in the failure to carry out the review; (ii) there are new circumstances or new facts which have a significant impact on the review of the concentration of operators and will result in the failure to carry out the review without verification; or (iii) the restrictive conditions attached to the concentration of operators need to be further assessed, and the operator makes a request for suspension.

This “Stop the Clock” System is a response to some unnecessary procedures in the examination of the concentration of operators due to the expiration of the statute of limitations, which will increase the flexibility of the time limit for the review of the concentration of operators.

Step-up Punishments to Violation
The strength of the punishment shows the determination of the Chinese government to reinforce the compliance awareness of the operators.

Several measures are taken to accomplish the goal: (i) the significant increase of the fines and the addition of special deterrent clauses; (ii) the addition of personal liability for monopoly agreements and the introduction of the enterprise credit punishment mechanism; (iii) the addition of the criminal liability provision for monopolistic behaviors; (iv) the establishment of the civil public interest litigation allows the People's Procuratorate to file a lawsuit against the operator who implements any monopolistic act that damages the public interests.

In summary, the new AML is another milestone in the development of the Chinese antitrust law regime, and by optimizing the anti-monopoly systems, it is expected to play an important role in preventing and restraining monopolistic practices.