On the first business day of Year 2020, China published for public comments a draft revisions to its Anti-Monopoly Law (“Draft Revisions”). The Draft Revisions contemplates a number of important changes to the current Anti-Monopoly Law (“AML”) which has been in effect since 1 August 2008.

1. An Overview of the Draft Revisions

The AML has 57 articles set out in 8 chapters. Comparatively, the Draft Revisions proposed 64 articles set out in 8 chapters. The Draft Revisions proposed the following amendments to the AML:

Chapter 1: General Provisions

(1) Article 1 of the Draft Revisions proposes to insert “the encouragement of innovation” among the other existing aims of the AML.

(2) Article 4 of the Draft Revisions proposes to add in the existing clause that China shall also “intensify the basic position of competition policies”.

(3) The Draft Revisions inserts a brand-new Article 9 proposing that “the state shall establish a fair competition review system, regulate administrative behaviours of the government, and prevent policies and measures that exclude and restrict competition from being issued”.

(4) In its Article 10, the Draft Revisions proposes to add the coordination of “fair competition review” as an additional duty for the State Council’s Anti-Monopoly Committee.

(5)  Article 11 of the Draft Revisions proposes that the single antitrust authority (currently the State Administration for Market Regulation, or SAMR) may set up outpost agencies.

Chapter 2: Monopoly Agreement

(1) The definition of “monopoly agreement” currently existing only in the clause governing horizontal monopoly agreement is being proposed to become a separate clause and hence covering both the horizontal and vertical monopoly agreements, in the manner that it should have been.

(2) The Draft Revisions adds a brand-new Article 17 to prohibit undertakings to organise and assist the other undertakings in the conclusion of monopoly agreements.

(3) In its Article 18, the Draft Revisions proposes to add one requirement to the existing “individual exemptions” regime, i.e. “the indispensability” requirement is being proposed to be added alongside the existing “no significant restriction on competition” and “consumer benefits” requirements. This means if an undertaking is to claim the benefits of individual exemptions, it would have to prove that the conduct in questions satisfy these three cumulative requirements instead of the previous two cumulative requirements, thus making it even more difficult for undertakings to claim the benefits of individual exemptions. However, the practical effect of such a proposed revision is perhaps limited since in any case no undertaking has successfully claimed the benefits of the individual exemptions regime in China’s 11-year AML enforcement history.

(4)  Article 19 of the Draft Revisions proposes that industry associations can also be punished for organising undertakings outside of its mandated industry to conduct monopoly behaviours.

Chapter 3: Abuse of Dominance

(1) The proposed Article 20 of the Draft Revisions suggests that in determining the lawfulness of “discriminative treatment” practiced by a dominant undertaking on its trading counter-parties, it would no longer be necessary for the party challenging such conduct (such as the SAMR) to establish that the discriminative treatment was imposed on a trading counter-party that is “in the same conditions” as the other trading counter-parties. This revision is flawed because it is inconsistent with the position in the Interim Provisions on the Prohibition of Abuse of Dominance which was published by the SAMR and in effect only 6 months ago.

(2) Article 21 proposes to add elements that are special to the internet industry (network effect, ability to obtain and handle data, etc.) when determining whether an undertaking is dominant in the relevant market.

Chapter 4: Concentration of Undertakings

(1) Article 23 proposes to insert a definition about “control”.

(2) Article 24 proposes that the SAMR may formulate and amend the notification threshold.

(3) Article 26 proposes to insert a requirement that undertakings should be responsible for the authenticity of the submitted materials in notifications.

(4) Article 30 proposes a few circumstances under which the “clock of review" would be stopped and power for the SAMR to publish specific rules thereof separately.

Chapter 5: Abuse of Administrative Power

This chapter has been special to China when compared to the other competition law jurisdictions. The Draft Revisions proposes no amendments that are significant or previously unknown.

Chapter 6: Investigation

(1) Article 44 proposes that, where necessary, the public security bureaus may assist in AML investigations conducted by the SAMR and its authorised local subsidiaries (the provincial-level administration for market regulation). The need for this proposed article may derive from the practical experience of the antitrust authorities of China in their investigations against a number of foreign and domestic firms, including the US firm of Medtronics in 2016.

(2) Article 46 proposes to add the protection of “individual privacy” as an obligation of the AML regulators alongside “trade secrets”.

(3) Article 50 proposes a clear delineation for the exclusion of price fixing, output restricting and market sharing conducts between competitors from the benefits of commitment decisions (a commitment decision is one that has the effect of suspending or terminating an antitrust investigation).

(4) Article 51 proposes that the SAMR shall have the power to initiate an investigation and revoke its merger review decision if the decision was later discovered to have been made based on unauthentic and inaccurate materials submitted by the relevant undertakings.

Chapter 7: Legal Liabilities

Significant revisions are being proposed. See discussions in Section 2 below.

Chapter 8: Supplementary Provisions

No significant revisions are being proposed.

2. More Deterrence Power for the AML

We are of the view that some of the proposed changes listed above are less significant than they may have appeared to be. Of practical significance is the elevated deterrence power that Chapter 7 of the Draft Revisions seeks to bring for the AML. Most notably, the Draft Revisions seeks to significantly increase administrative liabilities on firms, and also for the first time, lay the legal foundation for criminal sanctions on firms and individuals for AML violations.

2.1  Administrative Liabilities under the AML

The following table provides a comparison of administrative liabilities imposed by the current AML and the Draft Revisions. The proposed changes brought by the Draft Revisions are displayed in red fonts.

It is evident from this table that the Draft Revisions would raise the cap of fines for most types of violation to a significantly higher level. The most notable increase in the cap of fines is observed in violations relating to concentration of undertakings. If adopted, it can bring legal consequence for procedural violations such as gun-jumping closer to a par with the EU standard.

It is useful to be reminded that Mr WU Zhenguo, director-general of the Anti-Monopoly Bureau of the SAMR noted earlier in 2019 that the “annual sales value in the preceding year” ought to be interpreted to be based on a firm’s total annual sales value, rather than its annual sales value attributable to the relevant products which are the subject matter of the investigation. The latter approach has been the predominant method of fine calculation in previous AML enforcement activities for the past years.

These factors combined together, the amount of fines for AML violations can be significantly higher if the Draft Revisions are adopted as proposed.

2.2   Proposed Criminal Liabilities under the AML

Fashioned after the EU competition law, the greatest deterrence power in China’s AML has always been an administrative one in nature, whether in the form of huge fines (for instance, Qualcomm was fined over 6 billion yuan in 2015, being 8% of its annual sales value) or prohibition of deals (for instance, Coca-cola/Hui Yuan and Maersk/MSC/CMA CGM were prohibited in 2009 and 2014 respectively).

The current AML did not at all provide for criminal liabilities on firms or individuals that conduct monopoly behaviours. Under the current AML, the only circumstance under which a firm or an individual can bear criminal liability is related to the parties’ manners during investigations, i.e. when obstructing investigations are committed. However, Article 57 of the Draft Revisions succinctly proposes a brand-new provision that “if a crime is constituted, criminal responsibility shall be pursued according to law”. With this proposed amendment, the Draft Revisions seeks to give the AML a further uplift in the power. However, for criminal liabilities to become a reality, it has to be case that the Criminal Law of China has express stipulation for such crimes. We note that currently the Criminal Law of China does provide for a crime of “collusion in entering bids”. But is it then automatically applicable to the “bid-rigging” conduct under a competition law regime?

We are inclined to think that since the crime of “collusion in entering bids” only became a crime under the Criminal Law of China in 1997, which is ten years earlier than the promulgation of the AML, it could not have been contemplated at the time that this clause should interact with the AML prohibition of bid-rigging between competitors. Therefore, it remains to be observed whether Article 57 of the Draft Revisions will be adopted as proposed and if so, how it will be applied and whether China will seek to amend its Criminal Law accordingly.

3. Timetable

Currently, there is no announced timetable for the Draft Revisions to be finalised or to take effect. Nor is it easy to estimate such a timetable based on previous experience. For instance, the draft anti-monopoly law guidelines on the automotive industry, intellectual property, leniency, commitments and fines have been published for public comments in as early as 2016 and 2017, and they are still in the pipeline as at the time of writing. This, of course, is not to suggest that the Draft Revisions might be stagnated as these draft guidelines. It simply suggests that it will be difficult to estimate when the Draft Revisions will be finalised and in force.

4. Comments

Although the strengthened deterrence power that the Draft Revisions is seeking to bring to the AML cannot be over-emphasised, this document has a number of imperfections. For instance, it proposes that undertakings should be prohibited to organise or assist other undertakings in the “conclusion” of monopoly agreements. But it makes no sense to only prohibit the “conclusion” but not also the “implementation” thereof. The incompleteness in the draftsmanship could just be a technical remiss. Another example is that the Draft Revisions remains silent on how to deal with conducts that overlap the validities of the current AML and the revised AML.

The AML has somewhat been in the front and centre of the compliance agenda of firms in the past 11 years. If the Draft Revisions will be adopted as proposed, we expect to see  an increased level of awareness of the AML among firms (Chinese and foreign alike) due to its growing deterrence power.