Nearly fourteen years after its current Anti-Monopoly Law (“AML”) came into effect, China spares no efforts in strengthening antitrust enforcement and tightening relevant rules and regulations. Following the unprecedented Alibaba fines and a series of sector guidelines, that effort culminated this week, when the Standing Committee of the National People’s Congress (“NPC”) passed a new AML of amendments (“New AML”) to the current AML, with a few revisions to the previous draft (“Previous Draft”, together with an even earlier draft by State Administration for Market Regulation, the “Draft AML Amendment”) issued on 23 October 2021. Although a bill of law usually takes three rounds of deliberation before passage in China, it is possible to have a piece of legislation passed after two rounds where consensus could be achieved among relevant stakeholders; the New AML appears to be such an exception.
Beyond all doubt, the New AML, once becomes effective, will better arm the newly-established State Anti-Monopoly Bureau for a more challenging decade ahead. Having codified the current Chinese practices and adopted some foreign experience, the New AML aims to keep up with developments and market conditions that have transformed the way businesses are operated these days. While e-commerce and platform economy receive the most attention, sectors including people’s livelihood, finance, technology, and media are also highlighted. For many others, the new AML, while providing clearer procedure guidance, will take away the filing thresholds of safe harbour and impose harsher penalties for violations; antitrust and competition compliance will be put on the agenda, if not yet, for many undertakings, particularly those in key sectors.
I. The Main Aspects of the Draft AML Amendment
- Focus on platform economy:Out of fear of the competitive expansion of tech giants, it is universally acknowledged that legislative actions need to be taken to address the perceived enforcement gaps between the old school antitrust rules and the new types of anti-competitive conduct that emerged in the digital era. After the 2021 Guidelines for Anti-Monopoly in the Field of Platform Economy (“Platform Guidelines”), the New AML provides both some general terms that prohibits the increasingly aggressive application of the abuse of dominance by platform entities and tailored clauses that list the exact forms of such conducts.
- Tougher penalties with broadened targets: To secure the deterrence effects of the new AML, the New AML and Draft AML Amendmentpropose to increase the maximum level of fines for the relevant violations, especially gun-jumping, non-implementation of monopoly agreements and behaviours led by trade associations. Although the penal sum varies among different drafts, the final number set in the New AML is still several times of that under the current AML. Remarkably, the New AML creates a punitive penalty which multiplies fines by up to two to five times of the original penalty where the violation is serious. Those that do not generate any revenue in the previous financial years, too, cannot escape. In addition, it intends to impose liabilities on facilitators as well as legal representatives and the person in charge of or directly responsible.
- Weakening stance against RPM: Distinct from its European and American counterparts, resale price maintenance (“RPM”) has long been an enforcement priority in China with a dichotomy method adopted by antitrust enforcers and Chinese courts; the Chinese antitrust enforcement authorities take the “prohibition + exemption”, a semi-per se illegal approach and Chinese courts choose a road that is akin to rule of reason. While the Supreme People’s Court of China attempted to justify the difference in its renowned Yutaijudgement, the New AML clearly discloses the Chinese policymakers’ preference toward the rule of reason approach by putting the burden of proof on the concerned undertakings to show that it does not eliminate or restrict competition and repositioning the definition of “monopoly agreement”.
- Official introduction of safe harbour rules for monopoly agreements: Although safe harbour is not a new thing in China’s antitrust practice, previously it can only be found in some sector guidelines; the New AML now recognises the legitimacy of such block exemption in vertical agreement ina higher-level of law; details of the implementation rules, are yet to be established by the enforcement authority.
- Expansion of the enforcement authority’s jurisdiction:Concerns over concentrations involving undertakings, notably in the digital or pharmaceutical sectors, that have or may have anti-competitive impacts in the relevant markets, albeit with limited income, have grown in the past few years. The New AML tries to fill the gap by conferring on enforcer authority to review transactions that fall below filing thresholds.
- Establishment of a “stop-the-clock” mechanism:Currently, notifications filed in China have to be pulled and refiled after a maximum of 180 days review period; this process can be repeated in complicated cases, especially the ones approved with conditions. The New AML draws lessons from other jurisdictions and introduces the ‘stop-the-clock’ mechanism to suspend the review process under certain circumstances.
II. An In-Depth Look at the New AML
While largely in line with the previous draft, some proposed amendments, considering opinions from different sides, made under the New AML are novel; the detailed revisions are explained as follows:
- Erosion of safe harbour:In the Previous Draft, a safe-harbour clause is introduced to provide a higher-level legal basis for exempting certain agreements, horizontal and vertical alike, with concerned parties’ market share lower than (unspecified) thresholds set by enforcement authorities. However, the New AML now limits the application of safe harbour to vertical agreements alone, which are usually considered to be less anti-competitive than horizontal agreements among competitors. That said, the safe harbour clauses under existing sector guidelines remain valid. The change implies a cautious and stringent position taken by the legislator.
- Further refinement of platform economy rules:China makes no secret its ambition to tackle platform giants. A clause is included under the general provisions in the Previous Draft to prohibit undertakings from abusing data, algorithms, techniques, capital advantages and platform rules to eliminate or restrict competition. Despite the existence of the Platform Guidelines, the New AML further specifies some platform-specific anti-competitive conduct which mirrors the Platform Guidelines, on top of the general prohibition clauses under the chapter of abuse of dominance responding to the intensified antitrust scrutiny trend in the past year.
- Soft landing of “killer acquisition” investigation:Some stakeholders and scholars suggested the rules for reviewing transactions falling below filing thresholds should be further clarified. The New AML addresses this by allowing the enforcement authority to request the parties to transactions to file; the enforcement authority shall initiate an investigation if the parties fail to do so. This rule should benefit both transaction parties and enforcement authorities; the parties will have more mobility while the enforcer could save constrained enforcement resources.
- Altered enforcement authority:To reflect the elevation of the seniority of the market regulator’s antitrust unit, the State Anti-monopoly Bureau, the New AML now specifies the antitrust enforcement authority of the State Council to assume the power thereunder. The deputy ministerial-level enforcement authority, will now have more tools in its kits to carry on its duty.
- Interplay between the judiciary and law enforcement:While the current AML and earlier versions of its draft amendment are almost enforcement-exclusive, the New AML supplements a general clause that requires the reinforcement of antitrust judicial activities and a fair and efficient approach by courts in hearing antitrust cases. It also calls for improving the interplay between the judiciary and law enforcement.
III. Looking Ahead
On 24 June 2022, the Standing Committee of the NPC officially passed the much-awaited AML Amendment. The potential impact on the competition landscape of the new AML, together with its supplementary rules, would be wide-ranging. Harsher penalties, expanded jurisdiction, altered procedures and standards are reasons why the new AML merits close attention from undertakings doing business in China and related to China; we will keep our clients apprised of any further updates.