Q&A: PRC¡¯s Anti-monopoly legislation - A quick overview of the law to date

When was PRC¡¯s Anti-monopoly legislation enacted?
The PRC Anti-monopoly law (AML 2008) was promulgated on 30 August 2007 by the Twenty Ninth Meeting of the Standing Committee of the Tenth National People¡¯s Congress of the PRC. The legislation took effect from 01 August 2008.

The PRC were due to enact anti monopoly legislation in 1994, after the establishment of a socialist market economy in 1993, however the process dragged on for 13 years until finally the AML 2008 was passed.

What are the aims of the AML 2008?
Article 1 PRC¡¯s AML 2008 states:

¡®This Law is enacted for the purpose of preventing and restraining monopolistic conducts, protecting fair competition in the market, enhancing economic efficiency, safeguarding the interests of consumers and social public interest, promoting the healthy development of the socialist market economy.¡¯

Article 2 PRC¡¯s AML 2008 states:

¡®This Law shall be applicable to monopolistic conducts in economic activities within the People¡¯s Republic of China.¡¯

What actions are classified as ¡®monopolistic conducts¡¯?
Monopolistic conduct can include: (i) monopolistic agreements among business operators, (ii) abuse of dominant market positions by business operators, and (iii) concentration of business operators that eliminates or restricts competition or might be eliminating or restricting competition.

How was it envisaged that the AML 2008 be enforced?The AML 2008 created two bodies, the Anti-monopoly Commission (AMC), and the Anti-Monopoly Enforcement Authorities (AMEA)

AMC: The primary role of the AMC is to formulate Anti-monopoly policies.

AMEA: The AMEA is made up of three bodies. The Ministry of Commerce (Mofcom), the State Administration for Industry and Commerce (SAIC) and the National Development and Reform Commission (NDRC). Each body is allocated with enforcing certain aspects of the AML 2008.

What aspects of the AML 2008 do the members of the AMEA deal with?
Mofcom: Mofcom¡¯s official role is that of merger reviewer. If certain thresholds are met, then Mofcom will basically examine the implications of the proposed merger & acquisition. It has the power to reject, approve, or conditionally approve a merger.

SAIC: The role of the SAIC extends to non price related anti competitive actions. It may carry out investigations into cartel arrangements, and abuse of a dominant market position.

NDRC: Where the SAIC investigates the non price related aspects of the above anti monopolistic behaviour, the NDRC investigates price related actions.

There is considerable overlap between the SAIC and NDRC. Further reform may look at consolidating the resources of these two bodies into one.

What Anti-monopoly policies have been produced?Below are some of the policies that have been produced.
Mofcom:
(i) Regulations on Notification Thresholds for Concentrations of Undertakings: Outlined the thresholds that would require Mofcom notification. These were not addressed under the AML 2008.
(ii) Methods for Calculating the Turnover of Financial-Sector Business Operators: Outlined and detailed the formulae that should be used by companies in assessing whether Mofcom notification was required.

SAIC:
(i) Procedural Rules on Monopoly Agreements and Abuse of Dominance: Outlined the scope of SAIC investigations

NDRC:
To date NDRC have only issued a draft policy titled Provisions Against Monopolistic Pricing, which were available for public comment until 06 September 2009.

What cases have been decided under the AML 2008 to date?
There have been three main cases since the enforcement of the AML 2008. These cases are, (i) the acquisition of Anheuser-Busch by InBev, (ii) the proposed acquisition of Huiyuan by Coca-Cola, and (iii) the acquisition of Lucite by Mitsubishi. Mofcom are only required to publish decisions where conditions have been imposed, or the merger has been rejected. There are no requirements to published decisions that have been approved.

The former, and the latter were approved, however Mofcom placed conditions on the mergers. For example, under the InBev case, the company had to agree not to increase their current holdings in either Tsingtao Brewery, or Zhujiang Brewery, and in the Mitsubishi case Mofcom imposed de-investment conditions on the company.

The Coca-Cola merger with Chinese company Huiyuan was rejected. Mofcom outlined three justifications for rejection, including that if the merger went ahead then domestic SME would be restricted and limit the market. As a result of this, and coupled with the dissent amongst the Chinese public there were calls that the decision was based on protectionism. Mofcom strongly denies such claims.

More recently, Mofcom has conditional approved two further mergers a few days prior to the CPC¡¯s 60th anniversary: (a) acquisition of Delphi Corporation by General Motors Company, announced on 28th September 2009, and (b) acquisition of Wyeth Inc by Pfizer Inc, announced on 29th September 2009.

What can we expect to see from the AML 2008 in the future?
We are likely to see the SAIC and NDRC step forward and lead the way in the implementation and enforcement of the AML 2008. Mofcom is still likely to play a large role as M&A have long been an established procedure within the PRC.

More policies are likely to be produced, and more cases decided under the AML 2008.

Sam Engutsamy
November 2009



4 Comment

  • 1. Peter Pollard  |  November 9, 2009, 1:46 pm

    Thanks. Very interesting and useful explanation. Would love to see more entries like this.

  • 2. Peter Pollard  |  November 13, 2009, 9:16 am

    Interesting and succinct article. I look forward to more of the same.

  • 3. Peter Pollard  |  November 13, 2009, 9:17 am

    Good article. Look forward to more of the same.

  • 4. Peter Pollard  |  November 16, 2009, 10:54 am

    Great article

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