China: The NDRC Flexs Its Muscles - How To Mitigate Price Fixing Risk In The New Era

Last Updated: 16 June 2014
Article by Tao Jie and Wang Pei

China is growing into its role as a major economic power, and the competition regulators are stepping up to the plate. Merger control filings exceeded 200 in each of the last two years, and conditional clearances have imposed both structural and behavioral remedies. But merger control clearance is but one of the competition regulatory controls that China now employs. Fair pricing is the remit of the NDRC, and recent developments show that the NDRC is stepping into retail price maintenance and is forging a path to curtail international cartel behaviors. Each of these developments signals the maturing nature of the NDRC's role. And each counsels for heightened care across the board, including care with contracts, rigorous compliance programs and clear whistle blowing policies and procedures.

Retail Price Maintenance

With slightly over twenty investigations of retail price maintenance under its belt, the NDRC made headlines with two proceedings involving leading Chinese liquor brands, Maotai and Wuliangye. The NDRC went after each for illegally fixing minimum prices for distributor resales. The regulatory basis for sanctioning anti-competitive vertical price restraints is clear. In each case, the provincial arm of the NDRC took action. Maotai handed over RMB247 million in penalties, and Wuliangye, RMB202 million.

The fact that the provincial offices of the NDRC were on the front line is of some interest. It seems that the offending price-fixing in each of the Maotai and Wuliangye matters was widespread, and possibly nationwide. The central level NDRC may have played a coordinating role, but at the end of the day, the two provincial NDRC offices took action. It will be interesting to see if this pattern continues going forward, with local and provincial offices taking the lead, even when the sanctioned vertical restraints on pricing are broadly applied across regional and national markets.

The penalties, while unprecedented in China, have been widely viewed as quite low. In the Wuliangye case, the provincial NDRC's published announcement specifically stated that the amount represented one percent of the related sales revenue, the regulatory minimum. The minimum amount was imposed based on the full cooperation given by Wuliangye. Similar considerations seem to have been at play in the Maotai case as well. Interestingly, the one percent penalty referred to "related" sales revenue without specifying how "related" revenue was defined for purposes of the calculation. Perhaps only specific products involved? The published announcement mentioned that minimum prices were set with distributors on a national basis, and seemed to cover the period beginning in 2009. Was "related" sales revenue calculated for the entire period? These and other questions regarding remedies remain unclear, and await further published actions or additional guidance from the NDRC.

International Cartels – No Free Ride in China

Visible enforcement of fair pricing rules has not been confined to the domestic market. The NDRC has also gone after horizontal price fixing cartel arrangements. Earlier this year, it imposed penalties of RMB353 million on four Taiwanese and two Korean LCD manufacturers for their participation in an illegal price fixing cartel agreement. This LCD case is reportedly the first time the NDRC has pursued multinational companies. The penalties in China followed after action was taken against the cartel in other jurisdictions, including the United States and the European Union. From this case, it seems apparent that China, through the NDRC, is stepping on to the international stage, and expects to play a role in policing international cartels. The LCD investigation was extensive, spanning several years and likely provided the NDRC and its staff with a broad range of useful experience. We can expect that this experience, and this precedent, will be put to further use going forward, as the NDRC takes its place among the major global regulators battling international cartels who engage in horizontal price fixing to the detriment of the market.

Interestingly, the LCD cases also imposed behavioral requirements on the offenders. They were required to commit to the general requirements of fair dealing in price setting in the Chinese market, and to provide extended warranty periods for products sold in China. The imposition of these behavioral requirements may echo the approach taken in certain high-profile conditional merger control approvals recently announced by MOFCOM. Perhaps this congruent approach signals a policy, on the part of both regulators, to mandate terms that they each deem appropriate in an effort to protect the orderly functioning of the domestic market.

Can we expect to see more cases similar to the LCD case? We believe that is likely. Accordingly, if there is any regulatory action outside of China aimed at an alleged international cartel affecting your business, self-reporting in China should be carefully considered at an early stage, to lay the foundation for lenient treatment by the NDRC.

Contracts – Key Considerations

In the retail price maintenance context, the NDRC identified a number of practices that led to sanctions. The most obvious is the express mention of a minimum price. But the offending behavior did not stop there. There were additional features to some of the programs, including contractual rights to penalize distributors who did not comply with the minimum pricing requirement. Direct monetary penalties were involved, as well as the reduction or withdrawal of sales support services and the possibility of limiting additional supply. What is not clear, however, is whether one of these features alone, or some combination of them, would be sufficient to support the imposition of penalties. The prudent seller will no doubt exercise more caution with its distributorship contracts. That said, even if those contracts do not raise price fixing issues on their face, subsequent performance of those "clean" contacts could also lead to the same results. Accordingly, while important, a clean paper trail, by itself, may not serve to mitigate the risk of an investigation, and the imposition of penalties based on behaviors and expectations arising during the course of performance of a distributorship relationship. In short, we can expect that substance will trump form as the NDRC continues to police illegal price fixing activities.

The New Landscape

Several lessons should be learned from these developments. Leniency for cooperation underlies the Maotai and Wuliangye cases. The regulations expressly give the NDRC a significant degree of discretion to reduce penalties to reward cooperative behavior during investigations. More than this, however, the rules also encourage whistle blowing, and state that successful whistle blowers, who are themselves culpable, may have penalties reduced or waived in appropriate cases. These features of the rules apply across the board, and it appears that the NDRC is taking them seriously. These tools, when well deployed, significantly increase enforcement, mobilize private resources to assist the regulator and ultimately have a deterrent effect that may be nearly as powerful as larger monetary penalties might eventually become. Moreover, although we have yet to see significant activity in this area, the rules provide private rights of action for those harmed by illegal price fixing activities. In short, as the NDRC continues to flex its muscle, we would expect that these aspects of the regulatory regime will contribute to more self policing across industries.

Some uncertainties linger on the substantive law. The relevant rules, on their face, appear to strike a balance between a per se violation approach, similar to the European Union, and a rule of reason doctrine similar to the approach espoused by the US Supreme Court. Specifically, for both horizontal and vertical price fixing, the prohibition is first clearly set out, followed in a separate section by exceptions that would excuse the otherwise illegal price fixing behavior. Accordingly, on their face, the rules appear to provide something akin to an affirmative defense, once price-fixing has been established.

A current private right of action case in Shanghai squarely raises this issue. The court of first instance held that the plaintiff was required to produce evidence demonstrating the anti-competitive effects of the defendant's alleged price fixing activities, evidently viewing anti-competitive effects as an essential element of the claim. The case is currently on appeal, and although the outcome cannot be predicted, it would seem that this approach may not be consistent with regulatory framework. However, regardless of the outcome of the Shanghai case, additional judicial interpretations and nationally applicable regulatory guidance will be needed to fully clarify this fundamental point.

The Way Forward

The NDRC, like MOFCOM, is showing its strength in policing and penalizing illegal price fixing arrangements, both vertical and horizontal. This trend can be expected to continue, and mitigating risk requires a proactive approach. The first step involves a careful review of all affected contracts and documentation, but that is not the only measure needed. Equally important is raising awareness of various practices, outside of what is embodied in your contracts, which could give rise to an allegation of price fixing. A robust training program should be in place, and it should be coupled with whistle blowing policies and procedures designed to alert management to potential assertions of non-compliance in advance. Moreover, if regulatory actions that may affect you are being taken in other jurisdictions, early consideration of voluntary disclosure in China is warranted. Leniency for self-reporting, whistle blowing and full cooperation in any NDRC investigation can be expected, and should be sought, as appropriate. Finally, as with other Chinese competition laws and regulations, management should keep abreast of developments, particularly those with potential wide-ranging effect on your business.

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