China’s New Conduct Rules Take Effect

Adrian Emch, Feb 28, 2011

Decoding the New Chinese Antitrust Rules

Virtually in parallel with the arrival of the Chinese New Year, five new regulations implementing the Anti-Monopoly Law (“AML”) came into effect on February 1, 2011.  The regulations were published by the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”) on January 4 and 7, respectively.

NDRC and SAIC are two of China’s triumvirate of antitrust authorities.  Both have jurisdiction to enforce the AML’s conduct rules – i.e., against anticompetitive agreements and abuse of dominance.  NDRC is in charge if the anticompetitive conduct relates to pricing, while SAIC is responsible for anticompetitive conduct not related to pricing.  Both authorities can also take action against certain types of government conduct with anticompetitive outcomes – i.e., abuses of administrative powers to eliminate or restrict competition, more commonly known as “administrative monopolies.”

In the first two articles of this edition, NDRC and SAIC staff introduce the new regulations in their respective areas of jurisdiction.  Zhou Zhigao and Wan Jiang (NDRC) give an overview of NDRC’s antitrust practice, including its enforcement actions, normative efforts, and international cooperation.  Their article includes a discussion of the types of cases currently handled by NDRC and the principles guiding the regulator’s enforcement procedure.  The article by the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau (SAIC) explains the basic features of the regulations issued by SAIC since the AML’s entry into force.  It refers to a few important issues such as the concept of “concerted practices,” and highlights the factors justifying potentially abusive conduct by dominant firms.   The article also points to an interesting provision in the SAIC regulations which appears to expand the scope of the administrative monopoly prohibition to include market players.

The next three articles examine the new regulations and decision-making practice from the perspective of private practitioners.  Nathan Bush and Yue Bo (O’Melveny and Myers) analyze the new NDRC regulations by taking into account the evolution of NDRC as an institution as well as its other regulatory tasks.  They point to a few areas where challenges lie ahead for companies conducting business in China, including the “unfairness” criterion for pricing conduct, the regulator’s discretion in granting leniency, and the issues arising from the use of soft guidance.  Putting the new NDRC rules in their broader context, Michael Gu (Zhong Lun) looks at NDRC’s practice enforcing the AML in specific cases since the law came into force two and a half years ago.  After a detailed description of the facts and law in the few NDRC’s decisions adopted under the AML, the author draws some important lessons from those cases.  Ninette Dodoo (Clifford Chance) conducts a detailed examination of the new SAIC regulations.  Her article highlights several important questions-related to horizontal and vertical agreements, abuse of dominance and enforcement issues-which in her view arise from the regulations.

The articles by Richean Li (University of International Business and Economics) and James H. Jeffs (Intel) analyze the new set of rules from a perspective that cuts across the authorities’ fields of jurisdiction.  Taking a step back, Richean Li describes how antitrust enforcement powers are allocated in China, and explains the historical reasons behind the current system.  The article by James H. Jeffs screens the NDRC and SAIC regulations in detail to highlight differences in the specific provisions, and raises important questions as to how to reconcile concurrent jurisdiction by two agencies with similar responsibilities in practice.

As indicated above, NDRC and SAIC are two of the three antitrust authorities in China.  The third player is the Ministry of Commerce (“MOFCOM”), which has exclusive jurisdiction over merger control.  As there have been few if any spectacular developments in this area of the law recently, this edition does not feature articles on Chinese merger control.  Clearly, though, the fact that there have not been high-profile MOFCOM decisions in recent months does not mean that the authority’s work has been less intense.  Quite to the contrary, MOFCOM’s workload is steadily increasing, as is the sophistication of its staff and, conversely, the length of its merger control procedure seems to be decreasing.  Hence, many on the ground in China appreciate MOFCOM’s relatively discreet work – here, no news is clearly good news.

Against the background of the new NDRC and SAIC regulations and MOFCOM’s continued case-handling, the last article of the edition looks at the broader picture.  Dina Kallay (U.S .Federal Trade Commission) explains some basic principles of the bilateral cooperation between U.S. and Chinese authorities in the antitrust field.  Her article discusses various forms of ongoing cooperation between U.S. and Chinese antitrust agencies, and gives a glimpse of how this cooperation could develop in the coming months.

To conclude, the entry into force of the new NDRC and SAIC regulations, together with MOFCOM’s ongoing case work and the increasing level of international cooperation between antitrust authorities, may mark the beginning of a new phase in China’s antitrust enforcement history.

Beijing, February 22, 2011

Adrian Emch (Hogan Lovells)

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