2022.09.06 WEI, Yingling、YANG,Chen
On June 24, 2022, after two years of deliberation, China’s National Peoples’ Congress (“NPC”) approved the amendments to China’s Anti-Monopoly Law (“w88win优德中文版”) which took effect on August 1, 2022 (“Amended w88win优德中文版”).
The original w88win优德中文版 was enacted in 2008 and has governed the enforcement of antitrust laws in China for 14 years. During this time, China has become one of the three most important antitrust enforcement jurisdictions. Despite its achievements, the w88win优德中文版 had some shortcomings such as insufficient penalties, ambiguities in some areas, lack of hub-and-spoke rules, etc. The Amended w88win优德中文版 aims to fill such gaps and is expected to bring antitrust law enforcement in China to another level.
Highlights of the Amended w88win优德中文版
Fair competition review regime included in law. The fair competition review system is designed to prevent government agencies or the like from treating business undertakings in an anti-competitive manner. Though the regime was included in the Amended w88win优德中文版, it has been implemented for several years as a ministry regulation. It has been reported that during the last decade, 4.68 million government policy documents have been reviewed under the regime, of which 53,000 policies were repealed or revised accordingly.
Hub & Spoke cartels added in law. Hub & Spoke cartels are explicitly prohibited in the Amended w88win优德中文版 and undertakings that facilitate cartels will be subject to the same penalties as competitors within cartels.
By explicitly putting the burden of proof on non-anticompetitive effect upon the defendants, the Amended w88win优德中文版 resolves the long-standing divergency regarding resale price maintenance (“RPM”) between the courts and the enforcement agencies.
Safe harbor added in law. Safe harbor for vertical restraints has been introduced to the Amended w88win优德中文版 which authorizes the State Administration for Market Regulation (“SAMR”) to craft detailed rules. The enforcement agency is currently debating and formulating whether RPM can be protected by safe harbor and the circumstances in which safe harbor will be applied.
Antitrust penalties have been drastically increased and individual liabilities introduced. Maximum fines for certain violations (e.g., gun-jumping) are increased and individuals (e.g., senior management and employees directly responsible for monopoly agreements) are subject to fines of up to RMB 1 million. For egregious cases, penalties could be 2-5 times that of the maximum fines. It is yet to be clarified whether individual liabilities will only apply to cartels or be extended to vertical restraints.
Criminal liabilities added in law. A general provision that companies and individuals may be subject to criminal liability has been introduced in the Amended w88win优德中文版 for the first time. This clause shall be implemented until China’s Criminal Law provides specific crimes.
The Amended w88win优德中文版 empowers SAMR to review transactions that have potential anti-competitive effects but have not met the notification threshold, which shows a convergence with international enforcement trends regarding “killer acquisitions.”
“Stop-the-clock” added to the merger review. It signifies that there is no need to pull and refile a notification with competition/regulatory concerns if SAMR cannot complete the review within the statutory review period. It remains to be seen how SAMR will apply this mechanism and its impact on merger review timelines in China.
What happened in August 2022
The enforcement team at SAMR was expanded. Understaffing has been a big problem in China’s antitrust enforcement. More than ten newly hired officers were added to the SAMR enforcement team and the requirements on the provision of data in merger filings has been tightened.
Certain merger review work has been delegated to local enforcement agencies. Local antitrust enforcement agencies have been authorized to investigate conduct violations for a long time. For the next three years, local counterparties of SAMR in Beijing, Shanghai, Guangdong, Chongqing and Shaanxi have been delegated to review some simple procedure filings with a local nexus. In the first month of the Amended w88win优德中文版, 8 cases were delegated to its local counterparts, while 37 cases were handled by SAMR itself, according to the information published by the agencies.
Enforcement focus on the digital economy and livelihood related products continue. The Amended w88win优德中文版 contains newly added sloganized rules regarding the digital economy that echo China’s antitrust enforcement of digital big tech, which began in 2020. This trend will continue and livelihood related products/services such as pharmaceuticals and public utilities etc. will remain the focus of antitrust enforcement in China.
New modes of enforcement expected to be applied. In April 2021, administrative guidance was adopted in the Alibaba case which required Alibaba to formulate a rectification plan and submit annual self-assessment reports. It was used again in the Meituan case in 2021. It is expected that there will be more cases with this type of administrative guidance in the future.
Local enforcement agencies motivated to enforce law more actively. The Amended w88win优德中文版 garnered a lot of attention from the public in China. The trend of local counterparts of SAMR investigating antitrust violations in a more active way, which first began in late 2020, would continue.
