China: China's second resale price maintenance investigation this year

Last Updated: 16 July 2013
Article by Susan Ning, Kate Peng, Huang Jing and Li Rui

In May 2013, the National Development and Reform Commission ("NDRC") initiated the investigation against several infant formula companies for the alleged violation of Article 14 of the Antimonopoly Law ("AML").

This is the second investigation by NDRC against resale price maintenance ("RPM"). Early this year, NDRC fined China's famous producers of premium liquor, Kweichow Moutai Co Ltd. (Maotai) and Wuliangye Group Co., Ltd. (Wuliangye) in the amount of RMB 247 million (about USD 39.8 million) for RPM behaviors (Maotai/Wuliangye Case)i . The current investigation is still ongoing and no penalty against any companies has been made.

In both RPM investigations of this year, more than one company was investigated and the investigated companies are competitors with each other. This is an interesting phenomenon because, unlike horizontal monopoly agreements, vertical monopoly agreements do not usually involve collusion among competitors. The media reported that it was the high consumer price for infant formula that triggered the current NDRC investigation. As NDRC is responsible for supervising the price in different industries, the reports likely attracted NDRC's attention in the first place. This may explain why competitors are being investigated at the same time for vertical monopoly agreement in the absence of collusion.

It remains an open question the outcomes of the investigation. Although it is widely conjectured that NDRC would impose large fines on the investigated companies, the AML does provide great latitude as to how the regulators can deal with this type of cases. In the following we will briefly review the various mechanisms set forth in the AML with regard to monopoly agreements investigation.

1. Leniency Program

Paragraph 2 of Article 46 of the AML provides for the general rules of the leniency program. According to this Article, the regulatory authority can, at its discretion, reduce or waive the sanctions imposed on a business operator for its participation in a monopoly agreement if the operator has voluntarily reported the relevant facts of entering into a monopoly arrangement and provided important evidence to the regulatory authority.1

Judging from the structure of the AML, Article 46 generally covers the penalties arising from all monopoly agreements. Article 46 does not distinguish between horizontal and vertical agreements, and thus technically speaking the leniency program provided therein should apply to both horizontal and vertical agreements. To the best of our knowledge, leniency was granted in horizontal agreement investigation and has not been tried in vertical horizontal agreement investigation. However, considering that the purpose behind leniency is to encourage voluntary reports of violation and that there are jurisdictions where leniency program applies to vertical agreement investigation, the regulatory authorities may give the leniency program a broad interpretation to allow it to be applicable to all monopoly agreements. It remains to be seen whether and how the regulatory authorities shall apply the leniency program to vertical monopoly agreements.

Needless to say, to obtain immunity or leniency, the infant formula companies must satisfy the requirements under the AML by providing both the relevant facts of the monopoly agreement and important evidence to NDRC.

2. Suspension of Investigation

AML Article 45 provides a mechanism to suspend investigation. If a company under antitrust investigation undertakes to take timely measures to eliminate the consequences of its alleged monopolistic practices, the AML regulatory authorities may decide to suspend the investigation upon application. The regulatory authorities may exercise its discretion in deciding whether to grant the application. Even if the application is granted, the regulatory authorities shall oversee the fulfillment of the commitments and may nevertheless resume the investigation under certain circumstances.

According to media reports, Dumex, Wyeth, Beingmate, Biostime, Abbott and other companies have lowered their prices or given discount to consumers. It remains to be seen whether the price cut is sufficient to move the NDRC to suspend the investigation.

3. Exemption

AML Article 15 provides exemption for those monopoly agreements that have legitimate purpose. For example, Article 15 (2) exempts monopoly agreements that unify product specifications or standards, or carry out professional labor division for the purpose of upgrading product quality, reducing costs and improving efficiency.2

Theoretically, a company may invoke the exemptions under Article 15 to justify RPM. However, we do notice that NDRC adopts a relatively stringent attitude towards RPM. Based on the publicized decisions of NDRC and SAIC, no exemption has been given to companies under Article 15 up to the present. It can be seen that the regulatory authorities are very prudent in granting exemption under Article 15.

4. Penalties

Article 46 of the AML provides the calculation method for fines regarding monopoly agreement. Where the business operators violate the AML by entering into and implementing monopoly agreements, regulatory authorities shall order them to stop the illegal conduct, confiscate the illegal proceeds and impose a fine of 1% to 10% of the turnover for the previous year.

Based on the turnover of the infant formula companies in the previous year, the amount of the fines could be considerable if NDRC decides to impose fines.

Article 27 of Administrative Penalty Law provides that a party shall be given a lighter or mitigated administrative penalty if the party has taken the initiative to eliminate or lessen the harmful consequences occasioned by its illegal act or has performed meritorious deeds when working in coordination with administrative organs to investigate violations of law. In the Maotai/Wuliangye Case, Sichuan PDRC announced in its public statement that Wuliangye willingly and actively cooperated with the investigators by declaring its commitment to rectify the illegal practices, withdrawing penalties against the distributors, returning the confiscated marketing support fees and changed its practice to comply with AML. Based on the forgoing, Sichuan NDRC imposed a penalty at the lowest end of the applicable penalty range in the amount of 1% of Wuliangye's turnover.

In light of the above, the price-cut and the discounts undertaken by the investigated infant formula companies may be a factor that leads to a lighter administrative penalty. However, NDRC has the discretion to consider a variety of factors before giving any credit to the mitigating actions.

No matter how NDRC decides on the case, the fact that NDRC has conducted two investigations related to RPM conduct shows NDRC's determination to strictly and actively enforce the AML. In an interview regarding the current RPM investigation, an NDRC official said to the media that companies can not claim that they did not know the relevant regulations because the Maotai/Wuliangye Case has been published for more than 6 months.

Furthermore, recent news showed that NDRC extended its ongoing investigation into the infant formula companies to their upstream supplier. Fonterra confirmed it has been approached by the NDRC as part of a series of ongoing investigations launched against infant formula makers. In addition, news said that NDRC will keep probing other industries such as the pharmaceutical companies.

In light of the potential antitrust risks, companies without an antitrust compliance program should take adequate steps to set up and implement an anti-monopoly compliance program with a view to ensuring their compliance with AML rules. Companies with an existing program should review their AML compliance policy and reinforce their programs by strengthening the antitrust-concerns monitoring and handling systems.


1Paragraph 2 of Article 46 provides, "where a business operator who is engaged in a monopoly agreement voluntarily confesses the information about the monopoly agreement and provides the important evidence to the Anti-monopoly Law Enforcement Agency, the operator may be given a mitigated punishment or be exempt from punishment at the discretion of the Anti-monopoly Law Enforcement Agency."
2Article 15 Where the business operators can prove that a monopoly agreement reached by them falls under any of the following circumstances, the monopoly agreement shall be exempt from Articles 13 and 14 of this Law:
1. For the purpose of improving technologies, researching, and developing new products;
2. For the purpose of upgrading product quality, reducing costs, improving efficiency, unifying product specifications or standards, or carrying out professional labor division;
3. For the purpose of enhancing operational efficiency and reinforcing the competitiveness of small and medium-sized business operators;
4. For the purpose of realizing public interests such as conserving energy, protecting the environment and providing disaster relief, etc.;
5. For the purpose of mitigating the severe decrease of sales volume or obviously excessive production during economic recessions;
6. For the purpose of protecting the justifiable interests of the foreign trade or foreign economic cooperation; or
7. Other circumstances prescribed by the law or the State Council. iSee our previous article: NDRC say no resale price maintenance company should be cautious on pricing strategy (

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions