New Perspectives of Anti-monopoly Law in China

The public has witnessed the landscape reform in the antitrust regime since the first AML took effect in 2008 after 10 years of consultation. The AML, sometimes referred to as the economic constitution, was considered a tremendous leap forward for China to build a market economy and strikes a balance between government intervention and free market, between the public consumer interest and freedom for private profit seeking activities. During the decades of enforcement, the AML authority, namely the current State Administration for Market Regulation (“SAMR”), has played a significant role in regulating prices, breaking industry barriers and prevent oligopolies for a healthy competitive market in the long run. 

That being said, since the AML only laid out general principles of prohibitions and requirements, SAMR and the business operators still lack detailed guidance under AML. It has been found that the following issues should be addressed further in the AML despite the state council and SAMR have published numerous enforcement guidelines to increase predictability: 

• What are the evidentiary standards to prove the anti-competitive effect of the vertical and horizontal restraints?
• The time limitation to clear the merger filing for complex case is too short to finish the review for the authority without stop-the-clock mechanism.
• How to catch anti-competitive transactions like Uber vs Didi that fall below the filing threshold?
• How to stop “gun-jumping”?

Hence, the Amended AML has clarified certain aspects accordingly:

1) Relaxed RPM and Safe harbour

The resale price maintenance (RPM) has always been the most frequently asked compliance question by corporate clients. Previously, China adopted the illegal per se doctrine to regulate RPM, which means the RPM will be presumed illegal unless the anti-competitive effects can be proved by the business operators. The uncertainty and high threshold to apply such exemption has been the compliance burden for the business operators.

The amended AML has particularly lowered the burden of proof in Article 18 and provided that as long as the business operators can prove RPM will not limit competition, the RPM should not be prohibited. Meanwhile, like the peers in other jurisdictions, the authority also introduced the safe harbour doctrine to regulate vertical restraints based on market share. The new safe harbour provision in the Amended AML provided that if undertakings can prove that their market shares in the relevant markets are below the standards provided by the State's antitrust authorities, and meet other conditions provided by the same, such vertical agreements will not be prohibited. Even this is still quite vague as it does not provide specific market share thresholds, we see great value of introducing a safe harbour doctrine for the future to lower the compliance burden for those corporate clients whose market share is below 10%. 

2) Stop the clock

The amended AML allows SAMR to pause a merger review process if: 

• The notifying parties fail to provide requested documents so that the merger review cannot proceed; 
• New circumstances or new facts occur, which impact the merger review significantly, and the merger review cannot proceed without examining the new circumstances or facts; or 
• The proposed remedies require further assessment, and the relevant applicants request suspension. 

The "stop-the-clock" mechanism can provide SAMR with more time when reviewing complex merger cases, in particular those involving remedy assessment and negotiations. 

3) Catch the killer acquisition 

In digital markets, acquisition targets may play a significant competitive role without generating much turnover and thus fall outside of the scope of merger control which are based on the turnover of the acquirer and target. For example, the acquisitions of Uber by Didi did not reach the merger review thresholds, even though acquisitions clearly removed potential competitors from the scene, i.e. so called ‘killer acquisitions’. The merger control regime under the Amended AML has been adapted to capture those transactions.

Pursuant to the amended AML, if there is evidence proving that a transaction that falls below the merger control filing thresholds has or may have the effect of eliminating or restricting competition, SAMR can require the parties to notify the transaction. If the parties concerned do not follow SAMR's requirement to notify a below-threshold transaction, SAMR will investigate the transaction. Nonetheless, parties to a below-threshold killer acquisition have no obligation to file in China at first place until the Chinese antitrust agency requires them to do so based on their discretion. 

4) Increased fine

When merging parties fail to notify a merger to the competition authority, implement all or parts of the merger during mandatory waiting periods or co-ordinate their competitive behaviour before closing, this is commonly called “gun jumping”. 

It is worth note that SAMR considers those unreported transactions that reaches the threshold but completed without approval as a severe violation. The maximum fines have been increased to 10 times higher up to RMB 5 million. When anticompetitive effects are found, the maximum fine will be further increased to up to 10% of the notifying party's group turnover in the last year. 

At the same time, personal liability for legal representatives, principal responsible persons, and directly responsible persons for gun-jumping can now be a fine of up to RMB 1 million. Although it remains to be seen how actively SAMR would exercise such power.

The new amended AML will most likely lead a new wave of antitrust enforcement. It is encouraged for companies to establish the anti-monopoly compliance and responding system. The senior management will also need to supervise merger deals more closely and make clear and explicit commitments for compliance. It is time to identify and remove any new antitrust risks under the new amended AML.