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China Adopts Amendments to Anti-Monopoly Law

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On 24 June 2022, the National People's Congress, the top legislator of China, adopted the Amendments to the Anti-Monopoly Law (“Amendments”), which will become effective on 1 August 2022.  

This is the first time that China amended the Anti-Monopoly Law (“AML”) since it was promulgated in 2008.

In this article, we summarize the main changes brought by the Amendments that are important to companies doing business in or with China.    

Merger Control

1. The Amendments require China’s anti-trust enforcement agency (the State Administration for Market Regulation, “SAMR”) to strengthen its merger review in sectors involving national interests and people’s livelihood. We understand that such sectors may include finance, advanced technology, Internet and media, etc. 

2. Following the adoption of the Amendments, the State Council proposed updated notification thresholds (in draft form for comments) to (a) significantly increase the current turnover thresholds that trigger the need for merger control and (b) introduce a second set of thresholds to capture “killer acquisitions”. For details of the proposed new filing thresholds, please see Annex I

3. The Amendments also stress that SAMR has the jurisdiction to review transactions below these notification thresholds, if the transaction may give rise to any anti-competitive concerns.

4. The Amendments introduce a “stop-the-clock” mechanism. SAMR now has the right to suspend its review period for reasons including (a) incomplete responses by notifying parties, (b) new facts requiring verification or (c)  discussion about remedies.

Monopoly Agreements

5. The Amendments provide that a company shall not organize others to reach a monopoly agreement or substantially facilitate others to reach a monopoly agreement.  This new article is widely viewed as aiming to regulate “hub-and-spoke” arrangements, which fill a gap in China’s current antitrust legislation. 

6. The Amendments endeavour to provide more clarity on the approach to resale price maintenance (“RPM”). SAMR’s past practice was to treat RPM as “per-se” illegal.  The Amendments make it clear that the company under investigation can produce evidence to prove lack of anti-competitive effects to rebut RPM related charges.  That being said, in practice, companies may need to meet a very high standard to be successful on that argument.      

7. The Amendments provide the long-called-for “safe harbor”, but for vertical agreements only. SAMR’s draft regulations on monopoly agreements propose two conditions for enjoying the “safe harbor”: (a) the relevant parties’ market share in the relevant market is below 15%; and (b) no evidence demonstrating that the agreement would have anti-competitive effects.

Abuse of Dominance

8. A focused enforcement on effort by regulators on the Internet-related sector is expected. The Amendments specify that a company shall not take advantage of its data and algorithms, technology, capital advantages or platform rules to engage in any monopolistic conduct.  It is also emphasized that a company with a dominant market position shall not set barriers or impose unreasonable restrictions on others in use of such factors.

9. In particular, SAMR’s draft regulations on abuse of dominance add “self-preference” as a new form of abuse of dominance. More specifically, when a platform operator with a dominant position competes with others active on its platform, in the absence of justification, it shall not treat its own products more favourably in displaying or ranking of products, or using others’ data to develop its own products or assist in its own strategy making.

Substantially Increased Penalties

10. The Amendments significantly increase penalties towards “failure-to-notify’. Where companies fail to file their notifiable transactions or conduct gun-jumping, SAMR is empowered to impose a fine of up to RMB 5,000,000 (approx. USD 750,000) if the transaction would have no anti-competitive issues, or a fine of up to 10% of responsible parties’ turnover in the preceding year if the transaction would indeed cause anti-competitive effects.

11. The Amendments also include new penalties, such as legal representatives, persons in charge and directly accountable persons are facing personal liability if the company is engaged in any anti-competitive conduct. In addition, the Amendments add a provision that an individual/entity shall take criminal responsibility if the Criminal Law is violated, which leaves room to introduce criminal liability under the AML in the future.  For details, please see Annex II

Other Important Changes

12. The Amendments also add the “Fair Competition Reviewing System” into the law, which will help to better crack down on the administrative monopoly in China, and ensure policies and normative documents relating to market access, industrial development and government procurement comply with competition policies.

13. The Amendments task the People's Procuratorate (China’s public prosecution body) with pursuing public interest litigation against anti-competitive conducts, which means companies in potential violation of these laws may be facing a well-resourced challenger acting on behalf of small businesses and individual consumers.

Annex I   Proposed New Merger Filing Thresholds

A merger control filing will be triggered in China if the following thresholds are met:

(a)  The total global turnover of all concentrating parties in the previous fiscal year exceeds RMB 12 billion, and the turnover in China of at least two parties in the previous fiscal year each exceeds RMB 800 million; or

(b)  The total turnover in China of all concentrating parties in the previous fiscal year exceeds RMB 4 billion, and the turnover in China of at least two parties in the previous fiscal year each exceeds RMB 800 million.

A comparison with the current filing thresholds is set out below:  

 


Individual Turnover Threshold

Aggregate Turnover Threshold

 

At least the turnover of two concentrating parties each exceeds the following thresholds in China

 

 

The total turnover of all concentrating parties exceeds the following thresholds in China; or

 

The total turnover of all concentrating parties exceeds the following thresholds in the worldwide scope

Proposed new thresholds

RMB 800 million

(approx. USD 119 million)

 

RMB 4 billion

(approx. USD 596 million)

RMB 12 billion

(approx. USD 1.49 billion)

Current thresholds

RMB 400 million

(approx. USD 59.6 million)

RMB 2 billion

(approx. USD 298 million)  

RMB 10 billion

(approx. USD 1.79 billion)

In addition, a new set of thresholds are introduced, which we understand is aiming to catch “killer acquisitions” mainly carried out by giant Internet platforms:

  • The turnover in China of one of the concentrating parties exceeds RMB 100 billion in the previous fiscal year; and
  • The market value (or valuation) of the other concentrating party (i.e. the target company) is not less than RMB 800 million (approx. USD 119 million), and its turnover in China in the previous fiscal year accounted for more than one-third of its global turnover. 

Annex II Increased Penalties under the Amendments

Circumstances

Current AML

Amendments

Anti-competitive agreements

Parties with no turnover in the preceding year

/

RMB5,000,000
(approx. USD 750,000)

 Parties having reached the monopoly agreement without actual implementation

RMB500,000
(approx. USD75,000)
RMB3,000,000
(approx. USD 450,000)

Personal liability for legal representatives, persons in charge and directly accountable persons in relation to an anti-competitive agreement

/

RMB1,000,000
(approx. USD 150,000)

Parties having organized  other undertakings’ entering into an anti-competitive agreement or substantially facilitated the conclusion of such agreement

/

Same penalty as anti-competitive agreements

Merger review

Failure to notify, gun-jumping and breaching merger decisions

RMB500,000
(approx. USD 75,000)
RMB 5,000,000 (approx. USD 750,000), if the relevant concentration has no  anti-competitive effects
or
10% of the turnover in the preceding year, if the relevant concentration has anti-competitive effects.

Procedural violations

Individuals having refused to cooperate with an  investigation

RMB 20,000 (approx. USD 3,000);
or
RMB100,000 (approx. USD 15,000) in case of serious circumstances

RMB500,000 (approx. USD 75,000)

Entities having refused to cooperate with an investigation

RMB 200,000 (approx. USD 30,000);
or
RMB 1,000,000 (approx. USD 150,000) in case of serious circumstances
A fine no more than 1% of turnover in the preceding year;
or
RMB 5,000,000 (approx. USD 750,000) if there is no turnover in the preceding year

Penalty multiplier & social credit punishment

Infringements where the circumstances are extremely serious, the impact is extremely adverse or the consequences are extremely serious

/

Two to five times of the amount stipulated above

Any violation of the AML, which is imposed by administrative punishment

/

The violation shall be recorded and published under the social  credit system

Criminal responsibility

/

An individual/entity shall take criminal responsibility if the Criminal Law is violated. 

 

*The amount of the above monetary fines refers to the upper limit under the law. 

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