As the 2020 Draft Amendment to the Anti-Monopoly Law makes its way through the state legislative process, this first amendment in a decade will, if passed, be a comprehensive change to the current anti-monopoly regime. The amendment addresses all perspectives of monopolistic practices, including monopoly agreements, abuse of a dominant market position, the concentration of undertakings, abuse of administrative authority to eliminate or restrict competition, as well as enforcement and liability. This blog provides readers with an overall introduction to these significant changes.
Monopoly Agreement: Tightened Onus Probandi and Expanded Prohibition
According to revised language in Article 18 of the Draft Amendment, when proving an exception to the prohibition on monopoly agreement, besides the existing conditions, the operators need to prove the agreement is “necessary” for realizing the legal circumstances regulated by Items 1 through 5 of Article 18. Under the current anti-monopoly regime, operators need only prove that the agreement benefits the consumers and will not seriously restrict the competition in a relevant market to be exempted from prohibition.
This change will impose a heavier burden of proof on the parties to a monopoly agreement. The Draft Amendment also adds a new provision as Article 17 to ban the organization or the assistance by operators in concluding a monopoly agreement.
Abuse of Dominant Market Position: Internet Industry
The revised Article 21 adds extra considerations for identifying the dominant market position of internet operators, including:
- Network effect.
- Economies of scale.
- Lock-in effect.
- Ability of mastering and processing relevant data.
The Draft Amendment also expands the scope of prohibited practices by releasing certain restrictions in Article 20. The current law prohibits an operator holding a dominant market position from discriminating against trading counterparts of the same qualifications without justification. The revised Article 20(6) eliminates the restrictive condition of “the same qualifications.”
Concentration of Undertakings: Enriched Rules
Many changes are made in the section about concentration of undertakings. The 2007 Anti-Monopoly Law lays out three circumstances for the concentration of undertakings, namely:
- Obtaining control by equity or asset acquisition
- Obtaining control or decisive influence by contract or other means
The revised Article 23 in the 2020 Draft Amendment revises the third circumstance by deleting the situation involving obtaining decisive influence. Instead, it incorporates the term “decisive influence” into the meaning of “control.”
A new interpretation of the term “control” is added to Article 23. The revised definition now means the right or actual status of an operator actually or potentially having the ability to directly or indirectly assert a decisive influence over another operator’s production and operation activities or major decisions either independly or jointly with another operator.
The Draft Amendment further underlines the duties of the operators to voluntarily declare a concentration, as well as the responsibilities of enforcement authority to investigate potential concentrations. A new provision addressing the concentration of undertakings is added as Article 34.
Article 34 states that if a concentration of undertakings falls short of the declaration standard, the enforcement authority under the State Council has a right to make a decision provided its investigation finds that such concentration has or may have the effect of eliminating or restricting competition. The declaration standards for the concentrations of undertakings are specified in 2008 Provisions of the State Council on the Threshold for the Reporting of Undertaking Concentrations.
According to those standards, the business operators shall declare a concentration to the competent authority provided that:
The total amount of the global turnover realized by all business operators participating in the concentration during the previous accounting year exceeds RMB 10 billion with at least two business operators each achieving a turnover of more than RMB 400 million within China during the previous accounting year; or
The total amount of the turnover within China realized by all business operators participating in the concentration during the previous accounting year exceeds RMB 2 billion with at least two business operators each achieving a turnover of more than RMB 400 million within China during the previous accounting year.
The revised Article 36 – the successor to Article 31 of the 2007 Anti-Monopoly Law – sets forth a national security review on the concentration of undertakings applying equally to foreign and domestic investors. Under the 2007 law currently in force, the national security review only targets foreign investors who acquire domestic enterprises or in some other manner participate in the concentration of undertakings.
Abuse of Administrative Authority: Minor Changes
The revised Article 39 expands restrictions on the abuse of administrative authority so as not to eliminate or restrict both local and nonlocal operators from participating in any bidding activities. Article 42, substantially modified, adds a new paragraph stating that the administrative authorities and other empowered organizations shall carry out a fair competition review when formulating provisions concerning the economic activities of market entities.
Strengthened and Unified Enforcement
The newly added second paragraph of Article 50 in the Draft Amendment prohibits the enforcement authority from suspending investigation of monopoly agreements suspected of breaching Item 1, 2, or 3 of Article 15. It also outlines the obligation of the operators to report performance of their undertakings to the enforcement authority. Under the new Article 51, the enforcement authority also has a right to reopen an investigation even after a decision is made and withdraw this decision if new evidence shows that the documents furnished are or appear to be untrue or inaccurate.
The new provision of Article 52 emphasizes the obligations of the enforcement authority to address abuse of administrative power that eliminate and restrict competition. The modified Article 58 also empowers the enforcement authority to directly impose a correction order on administrative authorities or organizations for such breach. Previously, this power was held only by the relevant higher authority.
The Draft Amendment has substantially enhanced the economic penalties on illegal monopoly practices. With respect to the act of entering into and/or implementing a monopoly agreement, for operators having no sales revenue in the previous year or having not implemented the monopoly agreement reached, they will be subject to a fine up to RMB 50 million under the revised Article 53. Currently, the maximum limit is RMB 0.5 million. For an industry association that organizes operators to enter into a monopoly agreement, the fine will be up to RMB 5 million – currently, it is only RMB 0.5 million.
The Draft also adds a new provision to impose fines on operators at a rate up to 10% of the operator’s sales revenue in the previous year for the concentration of undertakings provided that they carry out concentration in violation of their duties of declaration, the decision on additional restrictive conditions, or the decision on prohibition of concentration, or without obtaining an approval. The second paragraph of this new Article 55 further specifies the measures that the enforcement authority is entitled to take under certain circumstances of the concentration of undertakings.
Under the revised Article 59, for entities other than administrative authorities or competent organizations that refuse to provide relevant materials or information, submit false materials/information, conceal, destroy or transfer evidence, threaten personal safety, or commit other acts of not complying with or impeding the investigation by the enforcement authority, they will be subject a fine of as much as 1% of the sales revenue in the previous year. If they have no sales revenue in the previous year or are unable to calculate their sales revenue, a fine up to RMB 5 million will be imposed. For individuals conducting the foregoing violation, they will be facing a fine from RMB 0.2 million to RMB 1 million. For administrative authorities or competent organizations in conducting such violations, the enforcement authority may suggest sanctions to the relevant higher authorities.
The Draft Amendment, for the first time, elaborates on the State’s responsibility to establish and implement a system for the review of fair competition to regulate the government’s administrative acts and prevent the issuance of any policy measures eliminating or restricting competition in the new Article 9. The title of Chapter 6 has been changed from “investigation into suspected monopolistic conducts” to “investigation into suspected illegal conducts.” The revised language will be more accurate and more consistent with the provisions because not all monopolistic activities are illegal.
Anna Huang practices law in the Aliant® China member office, IPO Pang Xingpu Attorneys at Law. She has with several years of experience on M&A, tax, employment, franchise, and corporate matters. She received her law degree in China at Harbin Engineering University and her LLM at the University of Oslo. This blog was originally posted on IPO Pang’s website: https://www.ipopang.com/blog/legal-updates/overview-of-what-is-new-in-2020-draft-amendment-to-chinas-anti-monopoly-law/