Competition Law at China
Introduction to Competition Law in China
Competition law in China is primarily governed by the Anti-Monopoly Law of the People's Republic of China (AML), which was enacted in 2008. The law aims to promote fair competition, prevent monopolistic behavior, and protect consumers' interests. It is designed to ensure that businesses operate under fair market conditions, preventing market abuse and promoting efficiency in the economy.
The AML addresses three primary areas of concern:
Anti-competitive Agreements (horizontal and vertical restraints)
Abuse of Market Dominance
Merger Control (control of anti-competitive mergers and acquisitions)
The State Administration for Market Regulation (SAMR) is the principal enforcement body responsible for administering the Anti-Monopoly Law.
In addition to the AML, there are several other laws and regulations that complement and support the enforcement of competition policy in China, including the Anti-Unfair Competition Law (AUCL), the Price Law, and various local regulations issued by SAMR and regional authorities.
Key Provisions of China's Anti-Monopoly Law (AML)
1. Prohibition of Anti-competitive Agreements (Article 13-17)
The AML prohibits businesses from entering into agreements that restrict competition. These agreements are categorized as:
Horizontal Agreements: These are agreements between competitors (i.e., companies operating at the same level of the supply chain). Common examples include price-fixing, market-sharing, or bid-rigging.
Vertical Agreements: These are agreements between companies at different levels of the supply chain (e.g., between manufacturers and retailers). They can include resale price maintenance or exclusive dealing.
Case Example: China's Qualcomm Case (2015)
In 2015, Qualcomm, a major American chip manufacturer, was fined nearly $975 million by SAMR for engaging in monopolistic practices. Qualcomm was accused of forcing Chinese smartphone manufacturers to pay excessive licensing fees for its standard-essential patents (SEPs). The company also was found to have exclusive agreements with Chinese mobile phone makers, violating the AML's provisions on anti-competitive agreements. This was one of the highest-profile cases in China’s competition law enforcement history.
2. Prohibition of Abuse of Market Dominance (Article 17-21)
Companies that hold dominant positions in the market are prohibited from abusing that dominance to restrict competition. Some examples of abusive behavior include:
Predatory pricing: Selling products below cost to drive competitors out of the market.
Tying arrangements: Forcing customers to buy one product to get access to another.
Refusal to deal: Refusing to supply products to competitors in an effort to harm competition.
Case Example: Microsoft and Abuse of Dominance (2015)
In 2015, Microsoft was fined ¥350 million (around $48 million) by SAMR for allegedly abusing its dominant position in the market for computer operating systems. SAMR found that Microsoft had imposed unreasonably high licensing fees for its software and had bundled additional software with its Windows operating system, creating an anti-competitive effect. This case is notable for SAMR's attempt to regulate the behavior of multinational companies in China, signaling its growing influence in enforcing competition law.
3. Merger Control (Article 25-28)
The AML requires that certain mergers and acquisitions be reviewed by SAMR to ensure that they do not significantly reduce or eliminate competition. Mergers that meet certain thresholds in terms of revenue or market share are subject to a mandatory filing process. SAMR may either approve, block, or conditionally approve mergers.
The key considerations for merger review are:
Market share: Whether the merger would result in the combined entity having a dominant position.
Barriers to entry: Whether the merger would make it difficult for new competitors to enter the market.
Consumer impact: Whether the merger would harm consumers by reducing competition, increasing prices, or decreasing innovation.
Case Example: China's Review of the T-Mobile and Sprint Merger (2020)
While this was a global merger involving two telecom giants, China’s competition authorities played an important role. The merger between T-Mobile and Sprint, two major telecom providers in the U.S., was scrutinized by China’s SAMR because the companies had significant operations in the Chinese market. SAMR’s investigation focused on whether the merger would harm competition within the telecom sector in China. Ultimately, the merger was approved, but with conditions attached to ensure that competition would not be unduly restricted in the market.
4. Price Monopoly (Article 14)
Price monopolies refer to situations where a company abuses its dominant position to set excessively high or low prices, affecting the broader market. Under the AML, this kind of price manipulation is prohibited if it restricts competition.
Other Key Regulations and Enforcement
Anti-Unfair Competition Law (AUCL)
The Anti-Unfair Competition Law (AUCL) is another key piece of legislation that supplements competition law in China. It focuses on unfair practices such as commercial bribery, false advertising, and the illegal use of trade secrets. While not directly related to market competition in terms of monopolistic behavior, it helps regulate business conduct to maintain a fair competitive environment.
SAMR’s Role and Enforcement Practices
SAMR enforces the Anti-Monopoly Law through a variety of tools, including investigations, fines, and orders to cease anti-competitive conduct. It has increasingly focused on regulating the behavior of large technology companies, especially in industries like e-commerce, fintech, and online services. In recent years, SAMR has been more aggressive in addressing the market dominance of Chinese giants like Alibaba, Tencent, and Baidu, as well as foreign companies like Apple and Google.
Recent Case Examples
Alibaba and the Antitrust Investigation (2021)
In 2021, SAMR imposed a record fine of ¥18.2 billion (approximately $2.8 billion) on Alibaba for violating the Anti-Monopoly Law. The investigation found that Alibaba had forced merchants to choose between selling exclusively on its platform or on its competitor’s platform, a practice known as "choosing one from two" (the “exclusivity” clause). This was seen as restricting competition by limiting market choice for both consumers and other businesses.
Didi Chuxing’s Antitrust Investigation (2021)
Didi Chuxing, the dominant ride-hailing app in China, was also investigated for possible violations of anti-competitive regulations. Didi’s market behavior, including acquiring smaller competitors and potentially using consumer data to monopolize the market, prompted SAMR to intervene. In addition, Didi faced broader scrutiny after its controversial listing on the New York Stock Exchange, which led to a series of regulatory challenges in China’s tech sector.
Conclusion
China’s competition law, through the Anti-Monopoly Law, is still developing and evolving. SAMR has become more proactive in monitoring anti-competitive behaviors and has imposed significant fines on both domestic and foreign companies. The competition landscape in China is increasingly focused on high-tech industries, especially in sectors like e-commerce, digital platforms, and telecommunications, with authorities closely watching how companies operate in these highly concentrated markets.
Competition law enforcement in China is becoming a critical area for businesses to navigate, with both domestic companies and foreign firms needing to be aware of the regulatory environment. As China’s economy continues to grow and evolve, the role of competition law in maintaining a fair and competitive market will likely become even more significant.
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