The new Anti-monopoly Law of the PRC, effective August 1, 2022

On June 24, 2022, the Standing Committee of the National People's Congress has approved the “Decision of the Standing Committee of the National People's Congress on Amending the Anti-monopoly Law of the People's Republic of China, (AML, 全国人民代表大会常务委员会关于修改《中华人民共和国反垄断法》的决定) which will be effective on August 1, 2022, in an attempt to promote a fair and transparent business environment for economic operators.

The first law on this subject was passed in 2008, and the new text of the law, compared to the previous one, introduces twelve new articles.

The amendments, specifically, concern:

• vertical monopoly agreement: article 18 provides that vertical monopoly agreements will not be prohibited if the undertakings pass the market share test and met certain conditions to be set by  the competent authorities with separate regulations. However, even if the minimum threshold is crossed, agreements are not automatically considered contrary to the law, as the economic operator will be able to prove that the agreement does not have an eliminatory or restrictive effect on competition.  In any case, the burden of proof appears complex and its sustainability will have to be verified in practice.

• Hub-and-spoke cartel: article 19 of the new law expressly prohibits organizing and assisting in the execution of monopoly agreements, the mechanism affects the hub-and-spoke cartel by providing the same legal responsibilities for both hub and spoke. In the previous text of the law, the hub was not penalized because of the lack of clear rules in the AML.

• Technology industry: abuse of data, algorithms, technologies and platform rules that lead to the restriction of unfair restrictions on companies constitutes abuse of market dominance under new articles 9 and 22.

• Introduction of "stop the clock" for merger review: the deadlines for merger review can be suspended under three specific circumstances, including the failure to submit the required documentation, the occurrence of major changes in the situation, and, with the agreement of the proponent parties, the need for further review of the proposal submitted by the parties.

• Power to review transactions below threshold granted: article 26 of the new AML grants SAMR the power to require the undertakings to notify and then to review a transaction below the threshold but may have the effect of eliminating or restricting competition. Where this obligation is not respected, the Antimonopoly Bureau may exercise investigative powers.

• Public interest lawsuit for monopolistic practices: if certain monopolistic practices cause harm to the public interest, a civil action can be brought against these practices under new article 50.

The most significant amendment concerns legal liability, as there is in fact an increase in existing sanctions and the introduction of new ones, including sanctions for individuals. 

The new regulations concerning the establishment of liability refer to the following practices, which are considered unlawful:

Anti-competitive agreements: article 56 of the new Antimonopoly Law now provides that a fine of 1 percent up to 10 percent of the previous year's turnover or, in its absence, up to RMB 5,000,000.00 in addition to confiscation of the illegal proceeds, shall be imposed in the case of agreements concluded and brought to execution. 

The additional penalty is not provided if the concluded agreements have not been executed. The amount of the fine in this case is lower, with a maximum of RMB 3,000,000. As anticipated, the most significant change introduced by the amendment is the provision of individual liability for all persons, including managing directors, representatives, directors and project supervisors, who participated in the anti-competitive agreement. For the individuals named, the fine stipulated is up to RMB 1,000,000.

Illegal merger and Gun-jumping: in accordance with the article 58 of the New Antimonopoly law, the liability varies in consideration of the effects derived from the transaction. In the case of anticompetitive effects, there is provision for the cancellation of the transaction, restoration of the pre-merger status, and a fine of up to 10 percent of the previous year's turnover; if, otherwise, no anticompetitive effects are derived from the transaction, the penalty is a fine of up to RMB 5,000,000.00.

Abuse of dominant position: the new text of article 57 provides for a fine between 1 percent and 10 percent of the previous year's turnover and confiscation of the illegal gain. If the violation of the provisions of this Law is especially serious and the consequences are especially serious, the article 63 of the new Antimonopoly Law provides fines not less than two times but not more than five times the amount of the fine prescribed in articles 56, 57, 58 and 62 of this Law.

Anti-money laundering regulatory violations: violating enterprises will be placed within China's national enterprise credit record [1]. This qualification may affect the reputation of the enterprise itself in public tenders.

Failure to cooperate in examinations and investigations: there are fines of up to RMB 500,000 for individuals, and fines of up to 1% of the previous year's turnover for the company or, in its absence, a penalty of up to RMB 5,000,000 .

The Law has, also, modified the structure of the State Anti-monopoly Bureau ( 国家反垄断局), now organized into three departments concerned with: coordination of competition policy implementation, supervision of monopoly agreements and abuse of market dominance, merger control, and gun-jumping investigations.

The State Administration for Market Regulation (SAMR, 国家市场监督管理总局) Chinese supervisory authority, continues to be the main supervisory institution.

The purpose of the Law, therefore, seems to be to improve the fair competition review system, the formulation, implementation of competition rules that suit the socialist market economy and the establishment of a unified, open, competitive and orderly market system.

[1] In 2014, China set up China's National Enterprise Credit Information Publicity System as an important measure to protect enterprise creditors. The published information comes from government departments and market entities, including all local industrial and commercial governments in China. You can search the data of any Chinese company in this system, either by the company's registered name in Chinese or by the unified social credit code (统一社会信用码).