China: Chinese Competition Regulators Focus On Cartels And Sharpen Their Investigatory Tools - 14 July 2009

Last Updated: 15 July 2009
Article by Martyn Huckerby and Alex Yang

China's Anti-monopoly Commission (AMC) has published guidelines that provide a basis for all enforcement activity under the Anti-Monopoly Law (AML) that involves defining the relevant market. Firms should now prepare themselves for possible dawn raids and other enforcement action by the National Development and Reform Commission (NDRC) against pricing cartels.

The Guidelines for Defining the Relevant Market (Guidelines) were issued by the AMC on 7 July 2009, the AML coordination body directly under the State Council. Therefore, they apply to any anti-monopoly enforcement work involving defining relevant markets, including controlling concentrations of undertakings, prohibiting monopoly agreements and abuse of dominant market positions, and prohibiting price monopolies, which are respectively handled by the Ministry of Commerce (MOFCOM), the State Administration of Industry and Commerce (SAIC) and the NDRC.

These guidelines follow draft rules on price monopolies and draft procedures for investigating and preventing price monopolies released by the NDRC on 9 June 2009. As a result of these draft rules and procedures, firms should review their pricing policy to ensure that they do not inadvertently involve monopolistic conduct at any of the following levels:

  • Prices charged to customers especially where the prices are "too high" (e.g., excessively above cost) or "too low" (e.g., insufficient to cover cost)
  • Prices paid to suppliers, especially where the firm uses "buying power" to extract a price that is "too low" (e.g., insufficient to cover the supplier's cost)
  • Prices offered to rivals who compete in downstream markets where the prices offered are "too high" such that it amounts to an effective refusal to supply
  • Any condition imposed on the price at which resellers may on-sell goods or services, and
  • Any arrangements on price with rivals or potential rivals, including any "informal understanding" that may develop independently of any formal agreements.

The draft NDRC rules may prohibit pricing conduct that some firms would not normally view as monopolistic. Australian firms in particular should consider these rules as they differ quite considerably from the rules applicable to Australian companies operating in Australia. They also prohibit administrative measures taken by public authorities that restrict or eliminate price competition.

Firms should take the opportunity to review whether they are affected by any administrative measures that may restrict or eliminate competition and consider asking the NDRC to review those measures.

1. Background To The NDRC rules

The draft NDRC rules and procedures complement those issued by the State Administration for Industry and Commerce (SAIC) which were the subject of two earlier alerts: Chinese regulators nearly battle ready - 30 April 2009, and Chinese antitrust regulators signal the commencement of AML investigations and fines - 9 June 2009. Whereas the draft SAIC rules concern monopolistic conduct on matters other than price, the draft NDRC rules concern price-related monopolistic conduct.

There are two types of price-related monopolistic conduct:

  • Monopoly agreements on price, and
  • Price-related abuses of market dominance.

The draft NDRC rules also apply to administrative measures issued by government agencies and organisations with a public affairs function conferred under a law or regulation.

2. Price Monopoly Agreements

The draft NDRC rules apply to written and oral agreements, and also to tacit understandings and co-ordination. Undertakings may be regarded as co-ordinating their pricing if the prices they charge for the same or similar products are subject to changes that are same or similar. While the NDRC rules recognise that there may be legitimate justification for such pricing behaviour, the rules do not indicate what justification would be accepted.

The draft NDRC rules go on to list a range of agreements that are prohibited. These include horizontal agreements (between competitors) to:

  • Fix price, discounts, changes in price and other price-related terms, and
  • Restrict output or sales with a view to fixing or altering price.

The draft NDRC rules also prohibit vertical agreements (between counterparties) on a minimum resale price. The agreements listed in the draft NDRC rules appear to be prohibited "per se", although this is not entirely clear.

The AML does allow monopoly agreements to be exempted on "policy grounds" where they are for the purpose of R&D, improved product quality, improved efficiency, or to protect the public interest (e.g., environment). However, exemption is conditional on the firm demonstrating that the monopoly agreement does not substantially restrict competition and that consumers will benefit from the agreement.

3. Abuse Of Market Dominance

As with other jurisdictions, China's AML prohibits firms having a dominant position in a market from abusing its market dominance. Unlike most jurisdictions, the AML also contain presumptive rules on market dominance (see bold text below). While this presumption may be rebutted (e.g. if there is evidence of easy entry, or of sufficient competition) the burden lies on the firm to do so. It could be difficult in practice to rebut a presumption of market dominance.

A firm is presumed to have market dominance if:

  • The firm accounts for more than 1/2 the market
  • The firm is one of two firms that together account for 2/3rd of the market
  • The firm is one of three firms that together account for 3/4th of the market.

A firm that meets the presumptive rules on market dominance should carefully review its pricing policies. Under the draft NDRC rules, any of the following practices could be regarded as an abuse of market dominance:

  • ("Monopoly/predatory pricing") charging prices that are "too high" (e.g., excessively above cost) or "too low" (e.g., insufficient to cover cost)
  • ("Monopsony pricing") using "buying power" to extract a price that is "too low" (e.g. insufficient to cover the supplier's cost)
  • ("Price squeeze") offering prices to competitors (in downstream markets) that are "too high" such that it amounts to an effective refusal to supply, and
  • ("Price discrimination") charging different prices for the same or similar products to customers who are in the same or a similar position.

The draft NDRC rules are expressed very broadly and potentially cover a host of pricing practices that firms may regard as normal commercial practice in their home countries. While this does not mean that the NDRC is set on using its powers indiscriminately, firms that meet the presumptive rules on market dominance should avoid dealing in a high-handed manner with customers, suppliers and rivals.

4. Abuse Of Administrative Power

Uniquely, China's AML prohibits abuses of administrative power that eliminate or restrict competition. These provisions reflect an attempt by the national government to prevent provincial and local authorities, as well as organisations having a public affairs function, from using their powers to eliminate or restrict competition.

The draft NDRC rules specifically prohibit measures that restrict inter-regional trade, including measures that:

  • Impose discriminatory charges and standards against non-local production, and
  • Impose discriminatory prices on non-local production.

The draft NDRC rules are, however, silent on other forms of price-related discrimination that may restrict competition as between:

  • Public enterprises and private firms, or
  • Domestic firms and foreign firms.

In principle, these forms of discrimination should also be prohibited under the AML to the extent they eliminate or restrict competition.

Some administrative measures may have the effect of eliminating or restricting competition to achieve certain legitimate public policy objectives. For example, it may be necessary to restrict competition in the provision of postal services in urban areas to subsidise the delivery of standard mail in rural areas.

It is not clear to what extent NDRC acknowledges that there may be a trade off between promoting competition and promoting other legitimate public interest objectives (e.g. health & safety, environmental protection, social security), and how the trade offs will be made. As these trade offs are a matter of public interest, ideally they should be made in a transparent manner with an opportunity for interested parties and members of the public generally to contribute to these decisions.

5. Guidelines On Market Definition

The Guidelines incorporate few changes to the draft that was previously published for consultation. The few changes that were made seem to address comments made on the earlier draft. For example, evidence of consumers switching to other products or to other geographic areas due to changes in price or other factors affecting competition is now stipulated as the primary consideration in defining a relevant product or geographic market from a view of demand-side substitutability. These changes indicate a willingness on the part of AMC to take on board legitimate comments on its draft Guidelines.

The Guidelines also provide an insight into AMC's thinking on the fundamental principles that underlie the AML. The Guidelines suggest that AMC's thinking is heavily influenced by established principles in other jurisdictions which in turn reflect economic theory. In particular:

  • The effect that a concentration has on competition is to be assessed in the context of a "market"
  • The scope of a market is based on "substitutability" - in particular, the market includes all products or services that are close substitutes, and
  • The extent to which products are close substitutes depends on the extent to which a hypothetical monopoly supplier of a given product can profitably raise the price of the product without causing customers to switch to the substitute product.

The principles described above are well established in antitrust/competition law, and appear to have been reproduced in the Guidelines. That said, there remains considerable discretion on how those principles are applied in practice, and how consistently they are applied over time and across different transactions.

6. Implications For Business

The approach to regulating price-related monopolistic conduct under the draft NDRC rules closely reflects the approach to regulating other monopolistic conduct under the SAIC rules. This indicates a high degree of co-operation between NDRC and SAIC.

However, it remains to be seen how closely and how well NDRC and SAIC will co-operate at a practical level when investigating specific instances of monopolistic conduct that involve both price and non-price aspects.

The clear implication of NDRC's and SAIC's actions to date is that firms should carefully review the way they conduct business in China, including the way they set prices and any price-related arrangements (whether formal or informal) they may have with customers, suppliers and rivals. This applies particularly to firms that meet the presumptive thresholds for market dominance under the AML.

While it is hoped that NDRC and SAIC will be cautious in the way they enforce the AML; as with the settling in period of any competition law, there are aspects of the AML which could be interpreted as prohibiting commercial practices that are considered normal and legitimate in other countries.

With regards to the Guidelines, they are generally based on orthodox principles. However, it remains to be seen how these principles are applied in practice.

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”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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