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2013-12-03 | Nanjing

Speaker: Director Zhi Shengmin, Legal Affairs Division, Bureau of Price Supervision and Anti-Monopoly, NDRC

November 4, 2013


Main topics discussed

Overview

Ÿ   Roles and responsibilities between NDRC, SAIC and MOFCOM and brief introduction of the State Council’s Anti-Monopoly Bureau:

-            MOFCOM (Anti-Monopoly Bureau): investigation of concentration of undertakings (i.e. M&A); international cooperation over competition policies

-            NDRC (Price Supervision and Anti-Monopoly Bureau): investigation of price monopoly agreements; National and provincial DRCs share administrative enforcement powers, while municipal and county-level DRCs are only authorized to assist in investigations; for cases across provinces, NDRC will lead and coordinate the investigation.

-            SAIC (Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau): Non-price cases including monopoly agreements, abuse of market domination, abuse of administrative powers to exclude or restrict competition etc.

-          State Council’s Anti-Monopoly Committee: composed of senior leaders from each of the three ministries, headed by Vice Premier Wang Yang

-          Each province has a similar structure and responsibilities at local level

Ÿ   Introduction of NDRC’s role in dealing with pricing issues: dates back to 1983/84, a law enforcement team down to the county level

Ÿ   Introduction of NDRC’s Anti-Monopoly Bureau: established in 2008, the Bureau has seen its own enlargement over the past five years. It has three divisions: Competition Policy Division, Anti-Monopoly Division I and II

Ÿ   Major laws and regulations on anti-monopoly:

-          Anti-Monopoly Law, Anti-Price Monopoly Regulations (Circular No.7) and Anti-Price Monopoly Enforcement Rules (Circular 8)

-          Each of the three ministries has further implementing regulations: NDRC 2, SAIC 3, MOFCOM 5+


Anti-Monopoly Law and Anti-Price Monopoly Regulations

AML includes pricing at both excessive high and excessive low levels. Price monopoly agreement, abuse of dominant position and abuse of administrative power to eliminate or restrain competition are three kinds of activities leading to monopoly

Ÿ   Price monopoly agreement: horizontal price agreement, vertical price agreement, other cooperating behaviours (its definition)

Ÿ   Problem of price agreement reached by industry associations: there used to be a list of forbidden activities but no relevant penalties à problem of how to punish industry associations à During the third revision of the Anti-Monopoly Law, penalties on such cases were introduced by article 7 = a maximum of RMB 500,000

Ÿ   Exemption mechanism: article 15 of the Anti-Monopoly Law, without being detailed enough, poses 3 criteria for benefiting from this mechanism: 1), satisfy any terms of terms 1-5 of article 15; 2), the agreement reached will not greatly harm market competition; 3), consumers can share the benefits of the agreement in question. However, for terms 6-7, no additional requirements are needed

Ÿ   Abuse of dominant position: chapter III of the Anti-Monopoly Law + Circular 7 clarify two concepts: unfairness and reasonable grounds, E.g.: case of Fu Fang Xie Li Ping and two medicine material trading companies in Shandong

Ÿ   Abuse of administrative power to eliminate or restrain competition: chapter V of the Anti-Monopoly Law

 
Anti-Price Monopoly Enforcement Rules

Ÿ   Sources for determining sectors/companies to investigate are numerous: general public (hotline: 12358); competitors; consumers; industry associations; media, etc. In short, any individual or entity can report a concern/complaint. In short, any individual or entity can report a concern/complaint. Furthermore, any written complaint must be investigated by means of: on-site inspections; summoning individuals; photocopying documents at the company; confiscating goods; reviewing bank account information.  Investigations will also focus on the chain of developments and the overall evidence

Ÿ   Procedures: preliminary investigations à putting on record of a case supported by proofs à investigations à qualitative analysis à report based on the analysis, including information of the parties involved and proofs as well as recommendations on how to settle the case à submission of report to higher levels à delivery of penalty and its implementation à administrative review or judicial action if necessary. Before the penalty is decided, opposition statement can be made

Ÿ   Key factors that are reviewed in investigation cases include: industry structure, number of players, and changes/trends in sector developments

Ÿ   Suspension of investigation: application in written form containing facts, promises, measures, time limit, other necessary information. If NDRC does not accept an application, it can: ask the operator to come up with new measures aiming at correcting negative consequences caused by its monopoly activities, or simply reject the application. After a supervision period, a suspension of investigation may end with a termination of it, or with a restart of it if 1), measures have not been implemented timely; 2), facts have changed; 3), the operator did not provide all necessary facts

Ÿ   Leniency: the Anti-Monopoly Law only lies down principles, while article 14 of the Circular 8 makes specifications borrowed from EU experience (here, the fine on income made from monopoly activities cannot be exempted/reduced)

 

Progress in the area of anti-monopoly

Ÿ   Improved legal framework: Circulars 7 and 8

Ÿ   Improved enforcement framework:

-          For NDRC, more powers are delegated to provincial level; not the case for MOFCOM; for SAIC, power delegation on a case by case basis regarding price monopoly agreement and abuse of dominant position, universal delegation regarding the abuse of administrative power

-          NDRC can delegate enforcement power to provincial level, and provincial level authorities can entrust municipal and county level authorities to carry out investigations, but they do not have the power to decide penalties

-          A reporting mechanism and an internal evaluation of cases conducted by provincial level authorities are set to ensure enforcement quality

Ÿ   Increased personnel in charge of enforcement

Ÿ   Anti-price monopoly investigations conducted actively:

-          All areas: insurance, telecommunications, pharmaceutical, infant formula, alcohol, etc.

-          All entities: SOEs, private companies, FIEs, and even industry associations/chambers are potentially liable

-          Case type: all types mentioned above

-          Conclusion: investigations are not carried out upon selection

Ÿ   Deepen the anti-price monopoly MOUs: MOUs have been signed between China and the UK, the US, South Korea and the EU’s DG Competition, with various cooperation forms

Outlook of the next-step-plan: enhance the role of competition policies in the process of economic development; actively conduct the enforcement of laws and regulations; raise public awareness/understanding on anti-monopoly; deepen international cooperation to increase China’s capacity of Anti-Monopoly Law enforcement. China will continue to strengthen its AML capacity and its ability to enforce it.  All three ministries have seen increases in resources. This will continue.

 

Most interesting question /answer

Q: China’s anti-monopoly legislation is still at an early stage, are there going to be more detailed regulations? Are there any channels to approach NDRC?

A: NDRC has the least of laws and regulations compared with SAIC and MOFCOM, so the tendency is towards more detailed guidelines. Meanwhile, NDRC welcomes companies to approach its Anti-Monopoly Bureau by phone at 6850 2595 and by fax at 6850 1770. When calling, please ensure that detailed information (company name, industry etc.) is provided.

 

Q: If sensitive information is exchanged between companies yet no monopoly activity has been undertaken, will this be considered as an “Other cooperating behaviour”? If a monopoly agreement is reached, are companies going to be punished?

A: A maximum penalty of RMB 500,000 will be posed if the agreement is not enforced, however, if it is implemented, the amount of penalty will be higher. As regarding other cooperating behaviours, if sensitive information on pricing issues is exchanged, the companies involved still need to be punished. NDRC will investigate the correlation between the no. of exchanges made and the companies’ price adjustments.

 

Q: The exemption mechanism will be applied if monopoly agreements are reached under the context of economic downturns. Does this mean a general economic downturn that impacts the entire society or one that is caused by overcapacity in one specific industry?

A: Even under a general economic downturn, not every single sector is impacted. Both scenarios need to be examined on a case by case basis

 

Q: Are there any examples of the use of miscellaneous provisions?

A: Not yet.