China: Fair Competition Review System

On June 14, 2016, the State Council issued Opinions on Establishing the Fair Competition Review System in the Development of Market System (hereinafter "Opinions"), which finally uncovers the veil of this system. Fair competition review system was first mentioned in Opinions on Promoting Further Systemic and Institutional Reforms to Accelerate Implementation of Innovation-Driven Development Strategies, issued by the Central Committee of the Communist Party of China and the State Council on March 13, 2015, indicating "break the local protection, sort out and abolish the rules and practices impeding the formation of an unified national market, rectify the improper subsidies or the act to restrict or exclude competition by making use of the administrative power by local governments, and explore and implement the inspection system for a fair competition."

Fair competition review system requires the government to comply with the requirements of establishing a unified, open and competitive market system when formulating the relevant policies. It also requires the government to fully consider the effect of the policies on the market competition in the event that the policies eliminate or restrict market competition, so that the market plays a decisive role in the allocation of resources and the government better plays its role.

Section three of the Opinions clarifies the object, method, standard of fair competition review, as well as the exceptions.

I.     Object of Review

Regulations, rules and other policy measures regarding the economic activities of market objects, including market entry, industry development, investment solicitation, bidder and tender, government procurement, operation acts, and qualification standard, which are promulgated by administrative authorities and other organizations authorized by laws or regulations to manage public affairs (hereinafter referred to "Policy-Making Agencies") , shall be subject to fair competition review.

In terms of administrative regulations, other policy measures promulgated by the State Council, local regulations, the relevant agencies are required to conduct fair competition review during the process of drafting. No such administrative regulations, other policy measures, or local regulations should be submitted for approval in the event of the absence of such self-review.

II.   Method of Review

The Policy-Making Agencies shall conduct self-review according to the standard of review strictly during the course of policies making. If the policies do not eliminate or restrict competition, they may be implemented; otherwise, the policies shall not be issued unless adjusted to comply with the relevant requirements. The policies must go through fair competition review before being issued. The Policy-Making Agencies must collect opinions from interested parties, or the public when drafting relevant policy measures, and implementing the fair competition review. The relevant policy measures shall be published publicly according to Regulation of the People's Republic of China on the Disclosure of Government Information after the issuance.

III. Standard of Review

The review is to maintain a national unified market and fair competition, and shall be conducted in accordance with the following standards:

1. Standards of Market Entry and Exit

a. The Policy-Making Agencies shall not require unreasonable and discriminatory conditions for market entry and exit;
b. The Policy-Making Agencies shall publish the list of franchise, and no franchise can be granted without fair competition;
c. The Policy-Making Agencies shall not force operators to deal, purchase or use goods and services provided by the designated operators;
d. The Policy-Making Agencies shall not require approval or pre-filing without legal basis;
e. The Policy-Making Agencies shall not set up approval requirement for any industries, fields and business except for the ones in the negative list of market entry.

2.  Standards of Free Flow of Goods and Factors

a. The Policy-Making Agencies shall not implement discriminatory price and subsidy policies for non-local and imported goods or services;
b. The Policy-Making Agencies shall not restrict the entry of non-local and imported goods or services into the local market, or obstruct the export of the local foods or services;
c. The Policy-Making Agencies shall not reject or restrict non-local operators to attend the local bidder or tender;
d. The Policy-Making Agencies shall not reject, restrict or force non-local operators to invest or set up subsidiaries in the local market;
e. The Policy-Making Agencies shall not impose discriminatory treatment on the local investment or local subsidiaries of non-local operators, and shall not infringe non-local operators' legal rights and interests.

3.  Standards of Affecting Manufacturing and Operating Costs

a. The Policy-Making Agencies shall not illegally provide preferential policies to certain operators;
b. When arranging fiscal expenditure, the Policy-Making Agencies shall not take the taxes or the non-tax incomes of the enterprises as reference;
c. The Policy-Making Agencies shall not illegally exempt the social insurance costs of certain operators;
d. The Policy-Making Agencies shall not ask operators to provide deposit or detain any kinds of deposit unless provided by laws.

4.   Standards of Affecting Manufacturing and Operating Acts

a. The Policy-Making Agencies shall not force operators to conducts monopoly acts prescribed in the Anti-Monopoly Law of the People's Republic of China (hereinafter referred to the "AML");
b. The Policy-Making Agencies shall not illegally disclose or require operators to disclose sensitive information regarding manufacturing and operating, or provide convenience to operators to conduct monopoly acts;
c. The Policy-Making Agencies shall not require governmental prices beyond their authority;
d. The Policy-Making Agencies shall not illegally interfere the price of goods and services with market- adjusted price.

No regions or departments shall promulgate policy measures that derogate the legal rights and interests or increase the obligations of market objects without legal basis; or violate the AML by promulgating polices and measures which eliminate or restrict competition.

IV.  Exceptions

The policy measures that eliminate or restrict competition, under the following circumstances, may be implemented with certain conditions:

1. To protect national economic safety, cultural safety or related to national defense construction.
2. To achieve social security goals, such as poverty alleviation and development, disaster relief and assistance, etc.
3. To achieve public interest goals, such as saving energy and resources, protecting environment, etc.
4. Other circumstances provided by laws and regulations.

The Policy-Making Agencies shall explain the goals and necessity of the relevant policy measures, and ensure that the policies will not significantly eliminate or restrict market competition, as well as the duration of such policies.

The Policy-Making Agencies shall evaluate the effect of the implemented policies every year. When the implementation period expires or the proposed effects are not achieved, the relevant policy measures shall be terminated or revised.

 

*Sarah Zhou is a trainee associate in Sheppard Mullin's Beijing office.

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.

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