Recent Anti-Monopoly Law (AML) investigations by the National Development and Reform Commission (NDRC) into certain industries created a stir. Large sections of the media focussed on the investigations into Western companies; this generated concern in the foreign business community and created a perception amongst many that the investigations were being used as a mechanism to readjust the market in favour of Chinese companies.

The European Chamber strongly supports the development of an anti-monopoly legal framework in China. We believe it is beneficial to the development of a fair, competitive and transparent market economy in China. Many Chamber members have in fact contributed to the AML since its introduction in 2008. In an effort to understand the law more clearly, and seek clarification of some of our member’s concerns, the European Chamber organised a dialogue event with an NDRC official.

Ms Zhi Shengmin, Director of Competition Policy and International Cooperation Division, NDRC, gave a breakdown of AML duties by ministry and explained the process for implementing the law including investigation, prioritisation and cases where leniency is introduced.

Breakdown of duties

The State Council has designated three ministries responsible for the AML: the Ministry of Commerce (MOFCOM), the NDRC and the State Administration for Industry and Commerce (SAIC):

MOFCOM (Anti-Monopoly Bureau): Investigation of concentration of undertakings (i.e. M&A); international cooperation over competition policies.

NDRC (Price Supervision and Anti-Monopoly Bureau): Investigation of price-monopoly agreements; national and provincial DRCs share administrative enforcement powers, while municipal and county-level DRCs are only authorised to assist in investigations; for cases across provinces, the NDRC lead and coordinate the investigation.

SAIC (Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau): Non-price cases including monopoly agreements, abuse of market domination, abuse of administrative powers to exclude or restrict competition etc.

The State Council itself has an AML Commission with an office based in the MOFCOM, but it does not deal with enforcement. Previously under the purview of Vice Premier Wang Qishan the Commission is now supervised by Vice Premier Wang Yang. There are four deputy directors within the Commission; three of these have responsibilities for dealing with the three ministries—MOFCOM, NDRC and SAIC—and the fourth is the Deputy Secretary General of the State Council.

The three ministries responsible have very different approaches. For example, the MOFCOM have not decided to empower provincial authorities to carry out investigations of conglomerated parties. The SAIC on the hand has opted to authorise provincial authorities on a case-by-case basis. For cases that are related to the abuse of administrative power, they have adopted the approach of universal authorisation.

In order to carry out work more efficiently the NDRC have specified that provincial authorities can make the necessary delegation to municipal- and county-level pricing authorities to assist during the investigation. This is in line with the relevant regulations of the law.

The AML does not exclude municipal- or county-level authorities from being involved in investigations; it only stipulates that they do not have power to issue penalties. Before a provincial-level authority carries out an investigation they must make a necessary report to the central level DRC, who then provide guidance and coordination.

The reporting registration mechanism states that ten working days prior to the commencement of a case, provincial-level authorities have to make a report to the NDRC.

At this stage analysis is carried out to decide with whom the responsibility for the case should actually fall. In cases that involve coordination between different regions or provinces special arrangements are required. After the NDRC approves the setting out of the case the provincial-level authority has to report back again providing more specific details of the investigation.

Based on the report provided by provincial-level authorities a decision is then made on whether the contents of the report or the direction of the case has been identified correctly, and also whether the decision to issue the necessary penalties is in line with the law. After an investigation, or when a case is closed, the provincial-level authority also has to make the necessary registration with the NDRC.
The NDRC carries out its own internal evaluations of cases executed at provincial level. Some of the key factors considered during the course of investigations is whether they should be carried out by provincial-level authorities, whether the facts or proof provided is up to standard and also whether the range of the legal application is actually legitimate and the penalty has been made on a fair basis. Most importantly is ascertaining whether the procedures followed are legal.

Case selection

Contrary to prevailing public opinion, cases for investigations are not actually selected by the NDRC. When it comes to determining who should be investigated the NDRC rely on external sources to report potential abuses of the AML. These include:

• the general public (hotline: 12358);
• competitors;
• consumers;
• industry associations; and
• media.

Basically, any individual or entity is entitled to report concerns or make complaints, and written complaints must be investigated. If the NDRC receive a report and do not deal with it they are considered as being in violation of the law.

Investigation

All sectors are of potential interest for investigation, and all entities too, be they privately owned, state-owned enterprises, domestic or foreign. Even associations and chambers of commerce are potentially liable. Method’s of investigation include on-site inspections, summoning of individuals, photocopying company documentation, confiscating goods and reviewing financial accounts.

In terms of price-monopoly agreements, which fall under the NDRC’s responsibility, they investigate anti-dumping cases where the price of a product is lower than the cost of its production, and also cases where prices have been set unreasonably high.

Procedures that are followed in the course of investigations are clearly defined in the Anti-Monopoly Procedure Regulations, comprising 26 articles. During daily investigations the procedures are actually a combination of the procedural regulations themselves and the Administrative Penalties Law.

In terms of the general procedures followed by enforcement authorities, cases always begin with an initial investigation following the filing of a report. After a report is received where a company is suspected of monopoly behaviour and some initial proof has been seen, the case is set out. After all the required proof has been gathered the NDRC then carry out some analysis to determine the actual type of case. According to the Administrative Penalties Law, after an investigation has concluded the investigators involved have to write a detailed report for further analysis.

Within this report the basic information of the party involved, as well as proof of what has occurred, must be specified. Recommendations for the next step of the investigation are also made. The report is then submitted to a higher-level authority. According to the Administrative Penalties Law, the parties involved are also entitled to make their own opposition statements.

Termination

According to the AML itself, there is an article relating to case termination. During an investigation the party involved has the right to request in writing a termination. If the price supervision bureau decides that the promises made in this application are able to offset the monopoly behaviour then a decision to terminate the investigation may be issued. However, if it is decided that the promises made in the application are not able to offset the monopoly behaviour there are normally two different approaches: the NDRC will lay out a list of recommendations detailing new actions to be taken; or the application is simply refused.

If the application fits the first category, i.e. it is felt there is still room to take actions that can offset the monopoly behaviour, after a decision has been made to terminate the investigation, supervision of the party involved will take place to ensure that they complete the necessary actions. After this period of supervision and internal evaluation an official document to terminate the investigation is issued. However, if one of these three situations arises the investigation can be relaunched:

1) The operator fails to completely fulfill his promises within the agreed time frame.

2) The facts that the investigation is based on are subject to multiple changes.

3) The decision to terminate the investigation is based on incomplete or false information submitted by the operator.

Leniency

Companies can apply for leniency by voluntarily completing reports to reveal the facts of their investigation.  Early cooperation and communication may result in reduction of the penalty. The overall penalty can include both fines and also confiscation of any income obtained after the law was violated, however, according to the Administrative Penalties Law, the NDRC can only rescind the fines, they cannot return any confiscated income. Circular number eight makes specific reference to leniency and has actually borrowed a lot from European laws:

• The first article states that the fine can be rescinded if the operator reports the circumstances relating to the pricing agreements, or where they voluntarily provide important facts or evidence. The company has to be the first to come forward with this information.
• The second article states that if a company is the second party to complete a self report, providing information and evidence, then a reduction of 50 to 90 per cent of the fine can be applied.
• The third article states that if the company is not the first or second party to come forward with a report and facts of the case then they only hope to have a maximum reduction of the fine of up to 50 per cent.

The NDRC is open and willing to respond to questions. However, it is requested that the nature of questions have a certain degree of specificity. Vague questions cannot always be answered. Call: +86 (10) 6850 2595.