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The Amended China Antimonopoly Law

照峰 周
27/06/2022

Locations

China

What do you need to know?

On 24 June 2022, the amended Antimonopoly Law (“amended AML”) was adopted and will take effect on 1 August 2022. This is the first amendment since the AML took effect fourteen years ago. Companies need to update their Chinese competition compliance policies to accommodate the requirements of the amended AML during a short grace period (just a little more than a month). Against this background, this article focuses on the key changes which companies need to pay attention to and update their current compliance policies accordingly. 

  1. Fair Competition Review

Article 5 of the amended AML provides that the State shall establish and improve a fair competition review system. According to Article 5, Administrative organs and organizations authorized by laws and regulations with the function of managing public affairs shall conduct a fair competition review when formulating provisions involving the economic activities of market entities. The fair competition review system has been enforced since 1 June 2016 when Opinions of the State Council on Establishing a Fair Competition Review System in the Construction of the Market System was published. Although the fair competition review system is based on the AML, the AML did not mention the fair competition review system until the amended AML was adopted a few days ago.
 
The author believes that fair competition review is an enlarged version of the state aid provision under the EU competition law. Companies can bring complaints to the relevant authorities and the State Administration for Market Regulation (“SAMR”) including local administrations for market regulation (“local AMRs”) if they think some draft regulatory rules are inconsistent with Article Five of the amended AML. This will have far more impacts on business than any other amendments, particularly on the distribution of subsidies, tax rebate, market entrance, and bidding. This will provide a powerful legal tool for companies to challenge the authorities if they feel being excluded from potential business opportunities by authorities’ requirements or notice. 

  1. Vertical Monopoly Agreements

2.1 Competition effects analysis
The amended AML provides that resale price fixing and minimum resale price maintenance (“resale price maintenance” or “RPM”) will not be prohibited if the involved undertakings can prove that their RPM does not have the effect of restricting or eliminating competition.
 
Under the current AML, the SAMR and local AMRs treat RPM as illegal per se and do not have obligation to analyze competition effect by RPM, while the courts consider that any RPM must analyze its competition effect. Under the judicial system, plaintiff must bring evidence to prove that RPM has the effect of restricting or eliminating competition. Failing to do so, their claim will not be supported. Such inconsistent approach has created compliance headache for companies. Now, the amended AML will solve this inconsistence. Under Article 18 of the amended AML, an undertaking will be allowed to provide evidence of not having the effect of restricting or eliminating competition when it is investigated by the SAMR or the local AMRs. Under the amended AML, however, the SAMR and the local AMRs do not have an obligation to initiate the competition effect analysis if the involved undertaking does not argue that its RPM does not have the effect of restricting or eliminating competition. This could reduce the burden and cost of the SAMR.
 
This will also have impacts on the judicial review for RPM. Before the adoption of the amended AML, the plaintiff must provide evidence to prove that the accused RPM has effects of restricting or eliminating competition when a case is brought to the court. Such requirement is a heavy burden for end users (who normally are individual customers) and is one of reasons that civil litigation is not a strong enforcement arm of the AML. Under the amended AML, the plaintiff does not need to provide evidence of RPM’s competition effect when the case is initiated, while it is the burden that the defendant will have to prove that its RPM does not have the effect of restricting or eliminating competition. This change will lower the burden for the plaintiff to bring a civil litigation involving RPM.
 
2.2 Safe Harbor
Under Article 18 of the amended AML, RPM will not be prohibited if the undertaking’s relevant market share is lower than the official threshold, which could be 15% according to the draft implementation rules released by the SAMR. The safe harbor provision will provide certainty for undertakings with small market share to legally engage in RPM conduct. This will make huge changes on the enforcement of RPM policy in China since RPM exists across many sectors in China, if not all sectors. 

  1. A hub-and-spoke conspiracy

Article 19 of the amended AML prohibits an undertaking from organising other undertakings to reach a monopoly agreement or providing substantive assistance for other undertakings to reach a monopoly agreement.
 
Before the adoption of the amended AML, a hub-and-spoke conspiracy can only be addressed through the horizontal monopoly agreement provision which is Article 13 of the current AML (Article 17 of the amended AML). There is a loophole to address a hub-and-spoke conspiracy under the horizontal monopoly agreement provision since under such provision, only horizontal undertakings will be punished. The undertaking which plays the role of a hub will not be punished easily since it does not operate in the same business that other “spoke” undertakings do.
 
Now, Article 19 of the amended AML effectively addresses this issue and companies need to update their Chinese competition law compliance manual to avoid such risks. Update on relevant training materials will also be needed. 

  1. Abuse of Dominance

Article 22 of the amended AML prohibits an undertaking with a dominant position from using data, algorithms, technologies and platform rules to engage in the acts of abusing its dominant market position as specified in the preceding paragraph of this Article. This change is the direct reflection of recent years of AML enforcement against platform companies such as Alibaba and Meituan regarding their abuses of dominance.
 
Article 22 itself does not prohibit any new type of abuses of dominance. What it does is to add certain tools, which are relevant to digital economy and could be used by digital giants when abusing their dominance. In this sense, the amended AML does not go as far as what the 10th amendment to the Germany Act against Restraints of Competition does, which came into effects last year. For companies in digital related sectors including big platform companies, it is good news since the amended AML does not bring any real extra additional burden to them comparing with companies in other sectors. 

  1. Merger Control

5.1 Heavy fines for not filing
Under the current AML, a company will face up to RMB 500,000 fines, if its transaction reaches the notifying thresholds but it fails to file a notification to the SAMR. Under the amended AML, the fines are divided to two categories depending on the difference of the involved transactions: (1) transactions which do not or are not likely to restrict or eliminate competition (“transactions without competition effect”); and (2) transactions which do or are likely to restrict or eliminate competition (“transactions with competition effect”). A company will face up to RMB 5 million fines if its transaction belongs to the first category, i.e. transactions without competition effect. A company will face up to 10% of its previous year turnover if its transaction belongs to the second category, i.e. transactions with competition effect. This change is a direct response to the existence of the large amount of illegal transactions which need to be filed under the AML but have not been filed.
 
In future, a notification assessment under the amended AML will become more important and companies ignoring the notification obligation will face at least 10 times more fines than they used to. In case of transactions with competition effect, companies will face 10% of their previous year turnover. Thus, we suggest companies must update their internal compliance police and follow the notification requirements if their transactions reach the Chinese notification thresholds.
 
Also, a company needs to consider filing their existing illegal transactions before 1 August 2022 when the amended AML came into effects to reduce the fines they will face. The amended AML does not provide that a company will face fines under the current AML if it decides to file before 1 August 2022. Based on our knowledge and experience, however, it will be the case if such voluntary filing is formally accepted or registered by the SAMR. It will take time for a voluntary filing to be registered by the SAMR and it is questionable whether it is possible to do so within a short period of one month or even less. The situation becomes less clear whether a company will face the fines under the current AML or not when it voluntarily files its illegal transaction but fails to get the registration of the filing before 1 August 2022.
 
5.2 Stop-clock provision
The amended AML provides that the antimonopoly enforcement authority (AMLEA) can suspend their merger review process under any of the following circumstances: (1) undertakings failure to submit documents and materials as required which makes the SAMR’s review impossible; (2) the occurrence of new circumstances and facts that has a significant impact on the review, which will lead to the failure of the review without verification; and (3) it is necessary to further evaluate the restrictive conditions attached to the concentration, and the undertakings make a request for suspension. The review process will be resumed once the one of above circumstances is eliminated.
 
Having a stop-clock provision is not unusual for compulsory pre-merger filing regimes. However, the stop-clock provision could make the merger review period much longer than the maximum six months. Companies must respond to the SAMR’s questions and requests promptly to avoid the stop-clock provision.
 
Also, the stop-clock provision provides a much-needed provision for further extending the review period. Under the current AML, the SAMR cannot further extend the review period after the two-month extension period lapses. In practice, this has led to some cases to be refiled, which means that the filing parties go through the filing procedure again. Obviously, it wastes time and resources for both the filing parties and the SAMR. Under the amended AML, under such circumstances, undertakings can apply for suspension and by doing so to give the SAMR more time to review the filing. From 1 August 2022, companies can apply for suspension after the two-month extension period rather than refiling their notification.
 
5.3 Delegation of merger review power
According to Article 37 of the amended AML, merger review power could be delegated to provincial AMRs. According to some insiders, the AMRs in Beijing, Shanghai, Chongqing, Guangdong and Shanxi have been chosen to test this delegation of merger review power. It is not clear how such power will be delegated and whether such change will improve the efficiency of the current review process. 

  1. Tips:
The amened AML will take effect on 1 August 2022. The amended AML: (1) brings new compliance obligations, such as the prohibition of a hub-and-spoke conspiracy; (2) reinforces some existing obligations by increasing penalties, such as increasing the fines for failing to file a transaction to the SAMR; and (3) relaxes certain restrictions, such as the relaxation of the RPM prohibition by having a safe harbor provision. Consequently, companies need to update their existing compliance system to reflect: (1) new obligations and reinforced obligations to make avoid potential violation risks; and (2) relaxations under the amended AML to make sure their business to be able to take such advantages provided by the amended AML.
 

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