This China Newsletter provides an overview of key Q1 2025 developments in the following areas:
1. Antitrust
- China Unveils Anti-Monopoly Guidelines for Pharmaceutical Sector
2. Compliance
- China Formally Finalizes First Anti-Corruption Guidelines for the Health Care and Life Sciences Industry
3. Corporate
- China Streamlines Company Registration: Key Changes Effective February 2025
4. Data Privacy & Cybersecurity
- China Issues Personal Information Compliance Audit Rule
- China Issues Regulation for Facial Recognition Technology Applications
- China Issues Measures for Labeling AI-Generated and Synthetic Content
5. Foreign Investment
- China Publishes 2025 Action Plan for Stabilizing Foreign Investment 6. International Trade
- China Promulgates Regulations for Implementing Anti-Foreign Sanctions Law
Antitrust
China Releases Anti-Monopoly Guidelines for Pharmaceutical Sector
国务院反垄断反不正当竞争委员会正式发布《关于药品领域的反垄断指南》
China's State Council has introduced new Anti-Monopoly Guidelines for the pharmaceutical sector, effective Jan. 24, 2025. These Guidelines provide a detailed framework for the State Administration for Market Regulation (SAMR) to assess potential anticompetitive behaviors in the pharmaceutical industry, including some previously unaddressed conduct.
The pharmaceutical and life sciences sector is a key focus of SAMR's anti-monopoly enforcement. Since 2018, SAMR has penalized 28 cases of anticompetitive conduct and imposed remedies in three mergers within the industry. Additionally, Chinese courts have become significant arenas for patent litigation involving pharmaceutical companies, often involving anti-monopoly claims or defenses.
Highlights of the Guidelines include:
- Reverse Payment Agreements: For the first time, the Guidelines provide specific enforcement guidance on "reverse payment agreements," where brand-name pharmaceutical suppliers unjustifiably pay or provide benefits to generic drug manufacturers to delay market entry or avoid patent challenges. These agreements may be deemed anticompetitive, with outlined factors for assessing their potential effects.
- Resale Price Maintenance (RPM): RPM has long been a target for SAMR in the health care industry. The Guidelines clarify that financial incentives and penalties, as well as auditing sales records or monitoring resale prices through third parties or algorithms, may be considered indirect measures to implement RPM. Exceptions are made for certain common restrictions in the pharmaceutical sector, such as the "agency exception" and logistics-only distributors.
- Joint Research & Development and Innovation Exemptions: The Guidelines recognize the benefits of joint R&D and outline factors for granting exemptions, including the relationship between parties, market control, competition restrictions, and necessity for R&D completion. SAMR considers consumer benefits like drug effectiveness, safety, market entry time, cost reduction, and responses to public health crises.
- Unfairly High Prices: The Guidelines refine criteria for identifying excessive pricing, including practices like "layering up" prices through false transactions or markups. SAMR will compare prices with competitor drugs, regional prices, historical prices, and costs to determine if prices are unfairly high.
- Product Hopping: The Guidelines introduce "product hopping," where companies modify existing patented drugs to extend patent life. Although there are no enforcement cases in China yet, such practices could be deemed anticompetitive if the new product offers minimal improvement or hinders generic entry.
- Conspiracy to Monopolize the Market: Companies across different levels of the pharmaceutical supply chain could face scrutiny for collaborating to monopolize the market and share profits. The Guidelines allow SAMR to address complex anticompetitive practices involving multiple actors that do not fit neatly into traditional categories of abuse of dominance or direct collusion.
- Merger Review: The Guidelines clarify aspects of pharmaceutical merger reviews, indicating that intellectual property transactions may trigger reviews and proposing innovative behavioral remedies like licensing key IP, granting open access to R&D platforms, sharing R&D data, guaranteeing supply, or lowering prices.
The release of both the Anti-Corruption Guidelines for the Health Care Industry and the Anti-Monopoly Guidelines for the Pharmaceutical Sector in January 2025 indicates heightened scrutiny by Chinese regulators on these industries. Pharmaceutical and health care companies operating in China must comply with these Guidelines, or risk penalties. Companies considering mergers and acquisitions should also be aware of the broad range of remedies SAMR may employ during merger reviews.
Compliance
China Finalizes Its First Anti-Corruption Guidelines for the Health Care and Life Sciences Industry
市场监管总局发布《医药企业防范商业贿赂风险合规指引》
On Jan. 10, 2025, China's State Administration for Market Regulation (SAMR) put into effect its Compliance Guidelines for Healthcare Companies to Prevent Commercial Bribery Risks (the Guidelines). The finalized version of the Guidelines is generally consistent with the draft version published by the SAMR Oct. 11, 2024, for public commentary (Draft Guidelines). Please see our November 2024 GT Advisory for analysis on the Draft Guidelines.
The Guidelines apply to pharmaceutical and medical device companies, as well as other third parties involved in the research, development, production, and distribution of medical products in China. They primarily address bribery risks in interactions with health care organizations (HCOs) and health care professionals (HCPs), regardless of whether they practice privately or publicly.
Key takeaways from the Guidelines include:
1. High expectations of compliance programs
The Guidelines assign the primary responsibility for managing anti-corruption risks to businesses. Companies are expected to establish compliance programs that can detect, mitigate, and address such risks in accordance with international best practices. This initiative aims to bridge the gap between the stringent compliance requirements faced by multinational corporations (MNCs) operating in China and the potentially inadequate compliance infrastructure of domestic companies.
2. Nine Enforcement Focuses and Risk-based Approach
The Guidelines address nine business activities that companies in the health care and life science sector routinely engage in that have been identified as areas at risk for bribery, including (1) academic promotional activities, such as meetings with HCPs to provide academic information and technical consultations; (2) hospitality, e.g., meals and entertainment for HCPs during business interactions; (3) consulting service fees to HCPs; (4) outsourcing medical research, manufacturing, and other business activities to third parties; (5) financial incentives provided at the point of sale, e.g., discounts, rebates, and commissions; (6) donations, sponsorships, and grants; (7) free supply of medical devices to HCOs; (8) clinical research; and (9) sales through retail pharmacies.
The Guidelines further set out in each case the red flags and green flags for business practices:
- Green flags include mandatory or encouraged practices, and are classified into the following four levels:
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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.
