On 24 June 2022, the 35th session of the 13th National People's Congress Standing Committee passed the Decision to Amend the Anti-Monopoly Law ("AML").
This is the first major legislative update of China's competition law since it was first introduced in 2008, with the amended version of the AML ("Amended AML") due to come into force on 1 August 2022.
In this briefing, we summarise the key highlights from the Amended AML, which include:
- Elevated status of China's competition policy
- References to the digital sector and infringements involving tech introduced to the legislation
- Resale price maintenance no longer "per se" illegal
- Significant increases to penalties for infringement
- Changes to the merger control regime
Elevated status of China's competition policy
The Amended AML restates the goals of the legislation, and clarifies in particular that antitrust regulation shall be carried out under the leadership of the Communist Party of China. This amendment elevates the legal and political status of China's competition policy very significantly, expressing the great importance attached by the Communist Party and the State towards competition policy.
This unprecedented level of focus on competition policy will directly affect the relationship between the State and the market, as well as the competitive landscape between businesses.
We predict that this may lead to further practical changes, which may include:
- Potential for the further expansion of China's competition enforcement agency;
- Other governmental departments becoming more respectful of the importance and crucial status of competition policy; and
- Competition enforcement agency being allocated more resources and accorded greater bargaining power in coordinating competition policy and other economic policies with other government departments.
| Current AML | Amended AML |
| Article 4 The State shall formulate and implement competition regulations which are compatible with the socialist market economy, improves macro-control, and cultivates a unified, open, competitive and orderly market system. | Article 4 Anti-monopoly regulation shall be carried out under the leadership of the Communist Party of China.
The State shall uphold principles of marketization and rule of law, enhance the fundamental status of competition policy, formulate and implement competition rules which are compatible with the socialist market economy, improves macro-control, and cultivates a unified, open, competitive and orderly market system. |
| No corresponding provisions. | Article 11 The State shall improve anti-monopoly regulations and framework, strengthen anti-monopoly supervision powers, raise regulatory capabilities and the level of modernization of regulatory systems, strengthen anti-monopoly public and private enforcement, hear and handle monopoly cases fairly and efficiently in accordance with the law, and maintain an order of fair competition. |
References to the digital sector and infringements involving tech introduced to the legislation
Whilst the digital sector has long been an enforcement focus of China's competition law regulator, the State Administration of Market Regulation ("SAMR"), and SAMR has published guidelines on enforcement of the AML against the platform economy, but in the past the digital sector has not been explicitly referenced in the AML itself.
This has now changed with the introduction of Article 9 in the general part of the Amended AML, which specifically references anti-competitive (or "monopolistic") conduct through the use of data, algorithms, technology etc.
This addition suggests that the strong enforcement focus on the digital sector will not abate in the near future.
| Current AML | Amended AML |
| No corresponding provisions. | Article 9 Business operators shall not use data and algorithms, technology, capital advantages, and platform rules etc. to engage in any monopolistic conduct prohibited by this Law. |
Resale price maintenance no longer "per se" illegal
Resale price maintenance ("RPM") has always been the focus of enforcement by antitrust enforcement agencies at all levels in China. Whilst there has been some uncertainty in the past as to whether RPM is "per se" illegal, it has been treated as such in most cases.
However, under the Amended AML, an "effects" test is explicitly introduced in relation to RPM. Whilst this may give rise to a degree of uncertainty in practice, this new introduction allows companies to make use of RPM where this does not have anti-competitive impact, and will give companies greater flexibility in the management of their distribution networks.
| Current AML | Amended AML |
| Article 14 Business operators are prohibited from reaching the following monopolistic agreements with their counterparties:
(1) Fixing the price for resale of goods to a third party; (2) Setting the minimum price for resale of goods to a third party; (3) Any other monopolistic agreements as identified by the anti-monopoly law enforcement agency of the State Council. |
Article 18 Business operators are prohibited from reaching the following monopolistic agreements with their counterparties:
(1) Fixing the price for resale of goods to a third party; (2) Setting the minimum price for resale of goods to a third party; (3) Any other monopolistic agreements as identified by the anti-monopoly law enforcement agency of the State Council. The agreements specified in (1) and (2) of the preceding paragraph shall not be prohibited if the business operator can prove that it does not have the effect of excluding or restricting competition. Where the business operator can prove that its market share in the relevant market falls below thresholds stipulated for by the anti-monopoly law enforcement agency of the State Council, and other conditions stipulated by the anti-monopoly law enforcement agency of the State Council are fulfilled, the agreement shall not be prohibited. |
Significant increases to penalties for infringement
The penalties for infringements have been significantly increased under the Amended AML, reflecting the increasing importance of competition policy:
Introduction of personal liability to management level personnel involved in anti-competitive (or "monopoly") agreements
Under the Amended AML, a company's legal representative, the main person-in-charge, and any other responsible person of a business that has personally been involved in reaching a monopoly agreement shall be subject to a fine of up to one million yuan.
The maximum fine can be multiplied by up to five times in serious cases
The fine for violations with "particularly serious circumstances, particularly negative impact, and particularly serious consequences" can be increased by two to five times. This could mean that the maximum fine imposed may not necessarily be capped at 10% of the company's revenue in the previous year, and therefore significantly increases the potential liability faced by parties to an infringement.
Increased fines for gun-jumping
For technical breaches of the merger control regime, which does not give rise to any anti-competitive effect on the market, the maximum fine has been increased from 500,000 yuan to 5 million yuan. For breaches involving concentrations that have (or may have) the effect of excluding or restricting competition, the maximum fine has been further increased to 10% of the company's revenue in the previous year, in line with the behavioural competition rules.
| Current AML | Amended AML |
| Article 46 Where a business operator violates this Law by entering into and implementing a monopoly agreement, the anti-monopoly law enforcement agency shall order it to cease its illegal activities, confiscate its illegal earnings, and impose on it a fine of less than one percent but not more than 10% of its previous year’s sales revenue; or may impose on it a fine of not more than 500,000 yuan if the monopoly agreement entered into has not been implemented.
Where a business operator reports, on its own initiative, the monopoly agreement it entered into to the AML enforcement authority and provides material evidence, the authority may, at its discretion, mitigate or exempt the business operator from punishment. Where a trade association violated this Law by arranging for business operators within the trade to enter into a monopoly agreement, the anti-monopoly law enforcement agency may impose on it a fine of not more than 500,000 yuan; in the case of a grave violation, the administrative agency in charge of the registration of social organizations may revoke the registration of the trade association. |
Article 56 Where a business operator violates this Law by entering into and implementing a monopoly agreement, the anti-monopoly law enforcement agency shall order it to cease its illegal activities, confiscate its illegal earnings, and impose on it a fine of less than one percent but not more than 10% of its previous year’s sales revenue, or if no sales revenue were made in the last year, a fine of not more than 5 million yuan; or may impose on it a fine of not more than 3 million yuan if the monopoly agreement entered into has not been implemented. If the legal representative, main head person or any directly responsible person of the business operator’s organization was personally liable for the monopoly agreement entered into, a fine of not more than 1 million yuan may be imposed on that individual.
Where a business operator organizes other business operators to enter into a monopoly agreement or provides any substantive assistance to other operators in entering into a monopoly agreement, the preceding paragraph applies. Where a business operator reports, on its own initiative, the monopoly agreement it entered into to the anti-monopoly law enforcement authority and provides material evidence, the authority may, at its discretion, mitigate or exempt the business operator from punishment. Where a trade association violated this Law by arranging for business operators within the trade to enter into a monopoly agreement, the anti-monopoly law enforcement agency shall order it to make corrections and may impose on it a fine of not more than 3 million yuan; in the case of a grave violation, the administrative agency in charge of the registration of social organizations may revoke the registration of the trade association. |
| No corresponding provisions. | Article 63 In the case of a particularly grave violation of this Law with an exceptional pernicious impact and exceptional grave consequences, the State Council’s anti-monopoly law enforcement authority may impose a fine of not less than two times but not more than five times the amount of the fine stated in Article 56, 57, 58 or 62 hereof. |
| Article 48 Where any business operator carries out a concentration of undertakings in violation of this Law, the State Council’s anti-monopoly law enforcement agency shall order it to end the concentration, dispose of the shares or assets or transfer the undertaking within a time limit, or take other necessary measures to restore its status to its pre-concentration state, and may impose on it a fine of not more than 500,000 yuan. | Article 58 Where any business operator carries out a concentration of undertakings in violation of this Law, the State Council’s anti-monopoly law enforcement agency shall order it to end the concentration, dispose of the shares or assets or transfer the undertaking within a time limit, or take other necessary measures to restore its status to the pre-concentration state, and impose on it a fine of not more than ten percent of its last year’s sales revenue if the concentration of undertakings has or may have an effect of excluding or limiting competition; or a fine of not more than 5 million yuan if the concentration of undertakings does not have an effect of excluding or limiting competition. |
Changes to the merger control regime
In addition to the significantly increased penalties for failure to file (including the distinction between concentrations that give rise to anti-competitive impact, and those that do not), the Amended AML specifies that SAMR may require notification of concentrations even where the notification thresholds are not met.
This is likely to reflect the increasing trend amongst competition regulators to consider "killer transactions", where start-up companies that represent potential competitors to major incumbent players are acquired before they generate sufficient turnover to trigger a merger control notification.
The Amended AML further specifies that, where the power has been exercised to require notification of a concentration, failure to do so may also be investigated as an infringement, notwithstanding that the notification thresholds were not met at the outset.
| Current AML | Amended AML |
| Article 21 For concentrations of business operators that meet notification standards prescribed by the State Council, operators shall notify the anti-monopoly law enforcement agency of the State Council in advance, and the concentration shall not be implemented if the notification is not made. | Article 21 For concentrations of business operators that meet notification standards prescribed by the State Council, operators shall notify the anti-monopoly law enforcement agency of the State Council in advance, and the concentration shall not be implemented if the notification is not made.
Where the concentration of business operators falls below notification thresholds stipulated by the State Council, but there is evidence that the concentration has or may have the effect of excluding or restricting competition, the anti-monopoly enforcement agency of the State Council can request business operators to notify. If the business operators fail to notify in accordance with the provisions of the preceding two paragraphs, the anti-monopoly law enforcement agency of the State Council shall conduct an investigation in accordance with law. |
| Article 37 Anti-monopoly law enforcement agency under the State Council shall establish a categorised and tiered review system for concentrations of business operators, enhance the review of concentrations in relation to important sectors such as those affecting the livelihoods of people in accordance with the law, and increase the quality and efficiency of reviews. |
Conclusion
The changes introduced in the Amended AML displays the ever-increasing significance of competition policy in China's administration, and also shows an effort to align competition enforcement with international standards (particularly with respects to the fines for infringements). We foresee that these trends will continue with growing enforcement and even greater fines, particularly in the digital sector.
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