China: A Six-Month Update Of China's Fair Competition Review System

In June 2016, China's State Council issued its Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-oriented Review System ("Opinions").1 The fair competition review system ("FCRS") that the Opinions contemplate is designed to protect against the potential abuse of administrative power by Chinese government agencies that could result in anti-competitive effects. In other words, the FCRS is supposed to constrain government activities from unduly influencing market competition, consistent with the prohibition that China's Anti-Monopoly Law places on such conduct.2

The Chinese government has been active in its efforts to implement the FCRS. Those efforts can be classified into three categories: (i) public education and awareness campaigns; (ii) development of implementation regulations and mechanisms; and (iii) actual FCRS reviews. Below, we highlight some of the progress in these areas.

Public Education and Awareness Campaigns

The effort that the Chinese government has undertaken to publicize the FCRS suggests the government is committed to the system and intends to make it work. Indeed, the government was ready to implement its communications plan about the Opinions very soon after releasing them. In late June, the government issued official interpretations of the necessity for, and feasibility of, the FCRS.3 This included a prestigious scholar's discussions about the fundamental status of competition policies, including a discussion of the relationship between competition policies and industrial policies, which is still hotly debated.4 Then, in July, the Information Office of the State Council held a press conference to formally introduce the Opinions.5 By early August, lectures on the Opinions were included as part of a nationwide training program on price regulation and anti-monopoly law enforcement.6

These efforts continued into the fall of this year. In October, the Bureau of Price Supervision held FCRS training courses for the major local price supervision and anti-monopoly agencies, pushing the provincial governments to forward the Opinions to lower government agencies or issue implementation opinions as soon as possible. The intent behind these programs, among other things, was to strengthen guidance to city and county level government departments.7 In early November, training courses on "Anti-monopoly law" were held in Guangzhou, which once again introduced the FCRS to the public.8 Most recently, on November 17, Zhang Handong, Director of the Bureau of Price Supervision of NDRC, spoke before 350 bureau-level officials at the National School of Administration regarding the FCRS.9 Local governments are also actively engaged in relevant training and publicizing of the FCRS.10

Development of Implementation Mechanisms and Regulations

To comply with the Opinions, all departments of the State Council, and all provincial governments and the departments thereof, must now conduct a fair competition review when formulating policy measures. The four departments–National Development and Reform Commission ("NDRC"); Legislative Affairs Office of the State Council ("LAO"); Ministry of Commerce ("MOFCOM"); and State Administration for Industry and Commerce ("SAIC")–are responsible for developing implementation mechanisms and regulations.

NDRC took the lead. On July 27, 2016, it issued a high-level notice on internal work procedures, which provides:

• Whichever of its subordinate bodies formulates a policy shall be responsible for that policy's review, and shall draft written conclusions before submitting the policy to NDRC along with relevant documents;
• When needed, departments and bureaus may seek opinions from the Bureau of Price Supervision during the review process; and
• Departments and bureaus shall submit conclusions on their respective fair competition reviews to the Department of Legal Affairs, together with relevant policies and measures, for legal review.11

MOFCOM has developed similar internal procedures.12 The issuance of these procedures is likely to guide other agencies in their formation of internal procedures to implement the FCRS.

Local provincial governments, as well as some state-run industries, also have responded to the Opinions by proposing self-review requirements that are in accord with the FCRS.13 For instance, the State Tobacco Monopoly Bureau, China Tobacco, issued an opinion on August 17 that calls for the establishment of fair competition reviews for the tobacco industry. It explicitly stated that all levels of the tobacco monopoly bureaus, tobacco companies, and other relevant entities shall conduct a fair competition review and shall formulate regulations and other policy measures related to market access, tendering and bidding, business conduct, and the like.14

Despite all of this progress, the four departments of the State Council recognize that there is still much work to do in order to successfully implement the FCRS. Thus, the departments have launched an assessment of their progress.15 Since mid-August 2016, the NDRC, MOFCOM and SAIC have undertaken a nationwide review of how local governments have implemented the Opinions; exchanged thoughts with local government officials, industry associations, and business representatives on the FCRS; studied competition in certain local markets; and gathered recommendations and opinions on the status of FCRS implementation.16

For instance, on September 29, NDRC Deputy Director Hu Zucai held a symposium on the FCRS, where he heard recommendations and opinions from various industry associations and enterprises on FCRS implementation and how it has helped to promote fair competition. Heads of the National Federation of Industry and Commerce, China General Chamber of Commerce, China Association of Small and Medium Enterprises, US-China Business Council, China European Chamber of Commerce and other associations and Jingdong Group, Dell Group and other enterprises, took part in that symposium.17

In addition, NDRC and other departments are gathering information from counterparts in other countries to help implement the FCRS. For example, in September, the Market and Price Research Institute of the Academy of Macroeconomic Research and the UK Prosperity Fund launched a project, Study on the Path to the Implementation of FCRS.18 On September 7, the NDRC's Bureau of Price Supervision and the German International Cooperation Agency jointly organized an international seminar on FCRS in Beijing, at which experts from China and other countries analyzed the similarities and differences between the OECD competition assessment system and the FCRS.19 In late October, the fifth "China Competition Policy Forum" took place in Beijing. There, Zhang Handong, Director of the Bureau of Price Supervision, introduced China's FCRS and met with Renata Hesse, Acting Assistant Attorney General of the Antitrust Division of the U.S Department of Justice, U.S. FTC Commissioner Maureen Ohlhausen, and Jenny Pratt, Senior Deputy Director of the Canada Competition Bureau.20 Finally, in early November, NDRC welcomed a visit from the Chairman of the Singapore Competition Commission during which the participants discussed the FCRS.21

FCRS Reviews

Departments of the State Council have started to implement the policies they have developed pursuant to the FCRS,22 and at least one has undertaken a fair competition review. The Interim Administrative Measures for the Business of Online Taxi Booking Services (issued on July 20, 2016, effective as of November 1, 2016) ("Measures") is the first such example.

A draft of the Measures was released for public comment on October 10, 2015. In June 2016, a traditional taxi service company, Shanghai Da Zhong Taxi Company, sent letters to the Ministry of Transport and the State Administration of Taxation, urging a fair competition review of the draft Measures. Da Zhong mainly complained that the online taxi booking service players did not follow the same strict regulations applied to traditional taxi service business and thus improperly lowered their service costs and unfairly competed with traditional tax drivers; moreover, online taxi booking service platform companies continued providing high subsidies to customers and drivers so as to increase their market shares, which constituted "selling services at prices lower than costs for the purpose of pushing out their competitors", violating the Anti-Unfair Competition Law. Several other traditional taxi companies joined the request. Compared with the draft Measures, the promulgated Measures incorporated many changes in details about taxi booking service platform providers, vehicles and drivers, and their conduct and supervision of them. Although we are not aware of any official report clarifying what changes in the promulgated version were made as a result of the fair competition review, compared with the draft Measures, the promulgated Measures more explicitly provide that "[A]n Online Taxi Booking Service Platform Company shall not impede fair market competition...and shall not commit price-related illegal activities" (Art. 21 of the Measures), which Da Zhong believed reflected its main concerns.23

Conclusion

It is still early, but the Chinese government and the four departments of the State Council have made significant efforts in the past six months to promote and implement the FCRS. These efforts reflect a business environment in China that continues to increase its focus on protecting fair competition.

Footnotes

1.Click here for our previous blog post providing an overview of the Fair Competition Review System's purposes and goals.

2.See Zhang Qiong, Implementing Fair Competition Review System and Safeguarding Fair Competition in Market, June, 21, 2016, People's Daily, available at http://www.gov.cn/zhengce/2016-06/21/content_5084029.htm.

3.e, e.g., id.

4.See WU Jinglian, A Key Step in Establishing the Fundamental Status of Competition Policies, June 22, 2016, available at http://www.sdpc.gov.cn/fzgggz/jgjdyfld/jjszhdt/201606/t20160622_808258.html.

5.See NDRC'S Explanation on Fair Competition Review System: Setting 18 "Don'ts" on Administrative Power, July 8, 2016, People's Daily, available at: http://www.gov.cn/zhengce/2016-07/08/content_5089315.htm.

6.See National Academy of Development and Strategy, Renmin University of China, Antitrust Research Team of Renmin University Lectured on Special Topics, August 15, 2016, available at http://www.china.com.cn/opinion/think/2016-08/15/content_39092030.htm.

7.See Bureau of Price Supervision and Inspection and Anti-monopoly, Bureau of Price Supervision Held a Training Course on Fair Competition Review System, October 11, 2016, available at http://www.sdpc.gov.cn/gzdt/201610/t20161011_822205.html.

8.See Anti-Monopoly Bureau of the Ministry of Commerce, 2016 Commerce System "Anti-Monopoly Law" Publicity and Training Courses Held in Guangzhou, November 15, 2016, available at http://fldj.mofcom.gov.cn/article/tpxw/201611/20161101760088.shtml.

9.See Bureau of Price Supervision and Inspection and Anti-monopoly, Director Zhang Handong of Bureau of Price Supervision Was Invited to Give a Report on Fair Competition Review System at the National School of Administration, November, 18, 2016, available at http://www.sdpc.gov.cn/gzdt/201611/t20161118_827053.html.

10. See, e.g., Zhejiang Law Society, Seminar Summary on "Comprehensively Deepening Reform, and Building and Implementing Fair Competition Review System" by Zhejiang Province, October 10, 2016, available at https://www.chinalaw.org.cn/Column/Column_View.aspx?ColumnID=737&InfoID=21366; Market and Quality Supervision Committee of ShenZhen Municipality, Market and Quality Supervision Committee of ShenZhen Municipality Organized a Special Seminar on Fair Competition Review System, November 21, 2016, available at http://www.szscjg.gov.cn/xxgk/xwzx/tpxw/201611/t20161121_5379901.htm.

11.See Bureau of Price Supervision and Inspection and Anti-monopoly, General Office of NDRC Issues a Notice on Internal Work Procedures in Implementing the Opinions, August, 2, 2016, available at: http://www.sdpc.gov.cn/gzdt/201608/t20160802_813946.html.

12.See Han Chunlin's Analysis: How the Fair Competition Review System Is Advanced, November 10, 2016, Sina Finance, available at: http://finance.sina.com.cn/meeting/2016-11-10/doc-ifxxsmic5918563.shtml.

13.See, e.g., Jiangsu Province issued Opinions on Implementation of Fair Competition Review System, Xinhuanet.com, August 26, 2016, available at http://www.js.xinhuanet.com/2016-08/26/c_1119460391.htm; Policies that Have Not Gone Through Fair Competition Review Cannot Be Promulgated, Liaoning Daily, October 21, 2016, available at http://liaoning.nen.com.cn/system/2016/10/21/019411305.shtml; People's Government of Heibei Province's Implementation Opinions on Establishing a Fair Competition Review System During the Development of Market-oriented System, September 30, 2016, available at http://www.hebei.gov.cn/hebei/13172779/13172783/13587712/index.html; Ningxia Establishes Fair Competition Review System, October 17, 2016, available at http://www.yinchuan.gov.cn/xwzx/zwyw/201610/t20161017_188404.html.

14.Lu Yanjin, State Tobacco monopoly Administration and China National Tobacco Corporation Issued Opinions on Establishing Fair Competition Review System to Promote the Sustainable and Healthy Development of the Industry, East Tobacco Newspaper, available at: http://www.tobacco.gov.cn/html/30/3004/4934961_n.html.

15.See Han Chunlin's Analysis: How the Fair Competition Review System Is Advanced, November 10, 2016, Sina Finance, available at: http://finance.sina.com.cn/meeting/2016-11-10/doc-ifxxsmic5918563.shtml.

16.See, e.g., Sichuan Development and Reform Commission, NDRC Fair Competition Review System Investigation Symposium Was Held in Our Province (Sichuan), August 24, 2016, available at http://www.scdrc.gov.cn/dir1118/180695.htm; Shanxi Price Bureau, NDRC Conducts Investigation on Fair Competition Review System in Shanxi Province, August 29, 2016, available at: http://www.shaanxi.gov.cn/0/1/9/41/217734.htm; Shanghai Government, NDRC Conducts Investigation on Fair Competition Review System in Shanghai, August 26, 2016, available at http://www.shanghai.gov.cn/nw2/nw2314/nw2315/nw4411/u21aw1157149.html.

17.See Bureau of Price Supervision and Inspection and Anti-monopoly, Deputy Director Hu Zucai Held a Symposium on Fair Competition Review System and Listened to the Recommendations from Some Industry Associations and Enterprise, September 30, 2016, available at http://www.sdpc.gov.cn/gzdt/201609/t20160930_821811.html.

18.See Bureau of Price Supervision and Inspection and Anti-monopoly, Mr. Zhang Handong, Director of the Bureau of Price Supervision Attended the Launching Ceremony of the Project- "Study on the Path to the Implementation of FCRS" of the National Academy of Macroeconomic Research and Gave a Speech, September 9, 2016, available at: http://www.sdpc.gov.cn/gzdt/201609/t20160909_818118.html.

19.See Bureau of Price Supervision and Inspection and Anti-monopoly, Bureau of Price Supervision under NDRC and the German International Cooperation Agency Jointly Organized an International Seminar on FCRS, September 9, 2016, available at http://www.sdpc.gov.cn/gzdt/201609/t20160909_818121.html.

20.See 2016 China Competition Policy Forum Held, Established the Fundamental Status of Competition Policies, October 28, 2016, available at http://wap.eastmoney.com/(S(vizage45k4udrmjmhk4skl55))/ScrollNewsCont.aspx?cd=20161028678166685.

21.See Bureau of Price Supervision and Inspection and Anti-monopoly, Bureau of Price Supervision Met with Mr. Du HanLi, Chairman of Singapore Competition Commission, November 11, 2016, available at: http://www.sdpc.gov.cn/gzdt/201611/t20161101_825369.html.

22.See Han Chunlin's Analysis: How the Fair Competition Review System Is Advanced, November 10, 2016, Sina Finance, available at: http://finance.sina.com.cn/meeting/2016-11-10/doc-ifxxsmic5918563.shtml.

23.See Bao Zhimin, Taxi Companies Responded to the New Policy on Online Taxi Booking Services: Limited Impact, Look Forward to Implementation Rules, July 29, 2016, Caixin.com, available at: http://www.weidu8.net/wx/134815.

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