After over 13 years of drafting, the long awaited Anti-Monopoly Law of the People's Republic of China ("PRC") ("Anti-Monopoly Law") was finally promulgated by the Standing Committee of the Tenth National People's Congress on 30 August 2007. The Anti-Monopoly Law will come into effect on 1 August 2008 and aims to provide a comprehensive framework for regulating market competition in the PRC. The new Law is expected to have a more significant impact on foreign investments than the 12 existing PRC laws and regulations on anti-trust provisions and anti-competitive conduct.
As a result of the new Law, foreign mergers and acquisitions of domestic companies or foreign capital investing in domestic companies' operations through other forms in the PRC will now have to overcome anti-monopoly checks in addition to the already existing approvals through the Ministry of Commerce.
Monopolistic Conduct
The Anti-Monopoly Law defines three types of monopolistic conduct :-
(i) monopoly agreements made between undertakings;
(ii) abuse of dominant market position by undertakings; and
(iii) concentration conduct by undertakings that may have the effect of eliminating or restricting competition.
In addition, Chapter V prohibits the abuse of administrative powers to restrict competition - a highly controversial subject during drafting of the Anti-Monopoly Law.
(i) Monopoly Agreements
Pursuant to Article 13, horizontal monopoly agreements between competing undertakings are generally prohibited and the following agreements are not allowed :-
(a) fixing or changing the price of commodities;
(b) restricting the output or sales of commodities;
(c) dividing the sales market or raw materials purchasing market;
(d) restricting the purchase of new technology or new facilities, or restricting the development of new technology or new products;
(e) boycotting transactions jointly; and
(f) any other monopoly agreements as determined by the State Council Anti-Monopoly Enforcement Authority ("AEA").
The following vertical monopoly agreements between undertakings and their trading partners shall be prohibited as set out in Article 14 although vertical monopoly agreements are not in general prohibited :-
(a) fixing the resale price of commodities to a third party;
(b) restricting the minimum resale price of commodities to a third party; and
(c) any other monopoly agreements as determined by AEA.
The term "monopoly agreement" in the Anti-Monopoly Law refers to the agreements, decisions or other concerted behaviour that eliminates or restricts competition.
(ii) Abuse of Dominant Market
Undertakings with dominant market positions are prohibited from engaging in the following behaviour that abuses their dominant market positions :-
(a) selling commodities at unfairly high prices or buying commodities at unfairly low prices;
(b) selling commodities at prices below cost without justifiable reasons;
(c) imposing unreasonable trading conditions or "tie-ins" to sales without justifiable reasons;
(d) refusing to trade with partners or compelling trading partners to enter into exclusive trading arrangements; or
(e) any other behaviour that abuses the dominant market position as determined by the AEA, etc.
The term "dominant market position" in the Anti-Monopoly Law refers to the position held by an undertaking in the relevant market which is capable of controlling the price, the quantity or other trading conditions, or can block or affect the entry of other undertakings into the relevant market.
Further, an undertaking shall be presumed to have a dominant market position if the market share of the undertaking accounts for 50% or more of the relevant market.
(iii) Concentration
Concentration is defined in Chapter IV as "mergers; controlling other undertakings by acquiring shares or assets; and acquiring control by contract or by obtaining the ability to exercise decisive influence over other undertakings by contract or other means".
The merger control regime already exists in PRC under the pre-merger notification rules of the Provisions on the Takeover of a Domestic Enterprise by a Foreign Investor issued by six governmental departments in August 2006 and the Guide for the Anti-Monopoly Declaration by a Foreign Investor in the Merger or Acquisition of a Domestic Enterprise issued by the Ministry of Commerce in March 2007.
Under the Anti-Monopoly Law not only offshore transactions will be affected, but purely domestic acquisitions will also be covered. Another significant element of the Anti-Monopoly Law is that foreign investors intending to merge and/or acquire entities in the PRC will now have to comply with the procedure of anti-monopoly notification and be subject to the national security examination in Chapter IV.
Anti-monopoly Notification
Article 21 provides that undertakings are obliged to notify the AEA regarding concentration reaching the threshold of notification stipulated by the State Council. AEA will examine and make a decision on the application within 30 to 180 days after receipt of all relevant documents.
However, the Anti-Monopoly Law does not provide the specific criteria or detailed procedures for notification, which are expected to be addressed by AEA in the coming implementation rules.
National Security Examination of Foreign Investment
Article 31 requires that foreign investment merger activities to pass both anti-monopoly examination and national security examination, if such merger or acquisition is likely to threaten "national security". It is the first time that Chinese authority has put such a requirement in written form. The Anti-Monopoly Law is considered to increase the approval requirement of foreign investment in certain sensitive industry sectors, and the national security examination can only be separately conducted by the relevant governing department under specific national regulations.
Although such national security examination is not intended to be a further restriction on foreign merger and acquisition in the PRC (unless it concerns a military or sensitive industries), the specific threshold and criteria of such examination will need to be clarified in the coming implementation rules in order to address the concerns of potential foreign investors.
Conclusion
The Anti-Monopoly Law is regarded as one of the most important laws passed by the PRC Government since its entry into the World Trade Organization and a great milestone in PRC's legal history. It remains to be seen how the implementing rules can clarify the broad language used in the Anti-Monopoly Law and if the relevant authorities will apply foreign concepts and interpretations to the competition principles embedded in the new Law.
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