Chillin'Competition

The Year of the Rabbit is over, and the Year of the Dragon just started today in China.  This is thus a good moment to look at the rabbit in the rearview mirror, and reflect on what has been achieved in Chinese antitrust over the past year. Our colleague and friend Adrian Emch from Hogan Lovells Beijing has proposed us a series of posts on the Year of the antitrust Rabbit.  If time allows, Adrian has promised a “trilogy!” 

For this first post, let’s just review the main developments in Chinese antitrust law over the year of the rabbit (the description is not meant to be exhaustive)? The year started with a bang: on 1 February 2011, a total of five new regulations implementing the Anti-Monopoly Law came into effect.  Two of them were released by the National Development and Reform Commission (NDRC), and three of them issued by the State Administration for Industry and Commerce (SAIC).  (For in-depth analyses of these regulations, see here.)

Besides this, and focusing on case-work, here’s a flavor of what Chinese agencies and Courts have been busy working on.

NDRC.  As already reported, one of the highlights in NDRC’s activities was the Unilever decision in May.  In November, NDRC also adopted a decision against two domestic pharmaceutical companies, with the highest fines ever imposed for an infringement of competition law.  The case was about two of only a handful of distributors of a drug (promethazine hydrochloride) that entered exclusive supply arrangements with the two only domestic producers of the drug.  The result was rather obvious – significant price increases.  The legal reasoning in NDRC’s public announcement of the case, in turn, was less clear.  Press reports indicated that the two distributors were affiliated, so a possible theory that the two distributors had engaged in cartel conduct would not make much sense if one were to accept the “single economic entity” defense (which is not explicitly in the law inChina, though).  It seems that NDRC, instead, held that the distributors had abused their dominant position.  But there is no explanation on this in the announcement, so one can only speculate whether the dominance was found pre- or post-agreement, and whether it was single or collective dominance.

Finally, in December, NDRC officials told the domestic press that they were investigating a potential abuse of dominance by two ofChina’s three large telecoms companies, China Telecom and China Unicom.  In the absence of an official decision or announcement, the exact facts of the case are not fully clear.  For example, it is, again, not entirely clear whether the dominant position would be each company individually (China Telecom is strong in the South of China, and China Unicom in the North) or jointly (collective dominance can be presumed if the aggregate market share of two companies is two-thirds or more).  As for the alleged abuse, it seems it consisted of making difficult access to the broadband network.   The particular allegation may be that the two companies granted access on a discriminatory basis, with higher access charges for companies that compete with them downstream.

 Finally, in terms of human resources, NDRC has started restructuring its antitrust team in 2011.  In July, the main body was re-named Price Supervision and Anti-Monopoly Bureau (in English), and the antitrust team inBeijingis scheduled to grow from half a dozen to over 20 in the coming months.

SAIC.  The actual casework by SAIC was relatively limited.  The noteworthy cases were SAIC’s case against the construction equipment industry association in Lianyungang for market-partitioning in January, and the “administrative monopoly” investigation against a local government in Guangzhou in the GPS case in July.  The relative scarcity of SAIC decisions may, in part, be due to the fact that, after NDRC’s expansion, SAIC’s antitrust team is about to become the smallest team of antitrust officials among the three enforcement agencies, with less than 10 officials.  In part, this may also be because SAIC was busy preparing the BRICS international competition conference, held inBeijing in September.

MOFCOM.  Yet another year, MOFCOM was probably the busiest of the three agencies, at least in terms of the number of cases handled.  203 transactions were notified in 2011, four of which were cleared subject to conditions – Uralkali/Silvinit, Alpha V/Savio, General Electric/Shenhua and Seagate/Samsung Hard Disk Drive.  The remainder was cleared conditionally (or the case withdrawn).  I will discuss three of these cases in more detail, regarding a particular aspect in a later post.  The remaining case – General Electric/Shenhua – was also significant, from (at least) three angles: first, it was the first case where an “adverse” merger decision (ie, prohibition or conditional clearance) was addressed to a Chinese company.  More of this in the next post.  Second, the General Electric/Shenhua decision is the first public decision to apply to the establishment of a joint venture.  With this decision, MOFCOM confirms that joint ventures can and do fall under Chinese merger control rules.  Third, prior to this transaction, the relevant markets in all of MOFCOM’s published decisions concerned tangible products.  The General Electric/Shenhua decision is the first where MOFCOM found the licensing of technology to be the relevant market.

In terms of staff and internal organization, MOFCOM’s Anti-Monopoly Bureau has also been put in charge of hosting the secretariat of the Anti-Monopoly Commission, a loose policy body made up of officials at minister-rank from 14 ministries and other government bodies.  As for the merger control officials, the size of the team has remained stable.  Some newcomers have joined, while others are about to be posted in Chinese embassies abroad as part of their career/rotation scheme.

Beyond actual cases, the three agencies have been pretty active on the international cooperation front.  As mentioned, SAIC hosted the BRICS conference in September.  SAIC and NDRC each signed cooperation agreements with the OFT.  And the three agencies jointly entered a MoU on antitrust cooperation with the FTC and the DOJ in July.  During a visit to the US by MOFCOM’s vice-minister in charge of the merger control work in November, MOFCOM, the FTC and the DOJ issued a document with follow-up “guidance” on their cooperation in the merger field.

Courts.  The lack of systematic publication/collection of judgments in China makes it difficult to assess the situation regarding antitrust litigation in China in 2011.  Sure, a few important judgments were reported.  For example, in December, the Changsha Intermediate People’s Court reportedly dismissed an action filed by a car owner against Nissan’s JV entity in China due to the insufficiency of evidence proving Nissan’s dominance and abusive conduct.  Overall, however, the year 2011 seems to have been relatively more quiet than 2010 in the litigation area.  (According to a judge of the Supreme People’s Court, while in 2010 a total of 33 antitrust actions were accepted by the courts throughout China, the first half of 2011 saw only seven cases accepted.  Article to be published here shortly.)

Still, one important development was the circulation for public comment by the Supreme People’s Court of a draft guidance document on procedural issues for antitrust litigation in April.  The court is understood to be in the process of enacting the guidance, and is expected to publish it soon.