China: guidance on cartel investigations
2017 marks the ninth anniversary of China's Antimonopoly Law (AML). As one of the first firms that took part in the drafting of the AML and thereby one of the first to provide AML-related service, we are fortunate to have participated in the rapid development of this legal regime. One of the most important trends we witnessed in recent years is that the AML enforcement authorities are paying closer attention to cartels and enforced more serious punishment on cartelists. In this article, we aim to provide in-house counsel and other international practitioners with an overview of cartel investigations in China by introducing the legal framework, investigation process and development of enforcement.
Enforcement policies and guidance
In China, the main substantive law governing cartel activities is the AML, which was issued on 30 August 2007 and became effective as of 1 August 2008. The cartel enforcement authority is shared by the National Development and Reform Commission (NDRC), which mainly investigates in price-related cartel agreements and the State Administration for Industry and Commerce (SAIC), which is responsible for investigation regarding non-price-related cartel agreements. Since 2008, the NDRC and the SAIC have also promulgated several rules governing both substantive and procedural aspects of enforcement against cartels, which include:
- Rules on Anti-price Monopoly (issued by the NDRC on 29 December 2010, effective as of 1 February 2011) (the NDRC Rules);
- Rules on Administrative Enforcement Procedure regarding Anti-price Monopoly (issued by the NDRC on 29 December 2010, effective as of 1 February 2011);
- Several Provisions on Regulating the Price-Related Administrative Penalty Power (issued by the NDRC, effective as of 1 July 2014) (the NDRC Penalty Rules);
- Provisions and Procedures on Investigating and Handling Cases of Monopoly Agreements and Abuse of Dominant Market Position by the Administration for Industry and Commerce (issued by the SAIC, effective as of 1 July 2009); and
- Rules of Administration for Industry and Commerce on the Prohibition of Monopoly Agreement Behaviours (issued by the SAIC on 31 December 2010, effective as of 1 February 2011) (the SAIC Provisions).
Before the AML was enacted, the Anti-Unfair Competition Law of 1993, the Price Law of 1998 and the Bidding Law of 2000 also contained certain provisions addressing cartel issues.
In addition, according to the working arrangements of the Anti-Monopoly Commission (AMC) under the State Council, the National Development and Reform Commission is drafting six antitrust guidelines, including Draft Guidelines on Commitments Made by Business Operators in Antitrust Cases (Draft Commitment Guidelines), Draft Guidelines on Determining Illegal Income of Undertakings' Monopolistic Behaviors and Fines (Draft Fines Guidelines), Draft Guidelines for General Conditions and Procedures on the Exemption of Monopoly Agreements (Draft Exemption Guidelines), and Draft Guidelines for the Application of the Leniency Program to Cases Involving Horizontal Monopoly Agreements (Draft Leniency Guidelines), which contain provisions applicable in the process of cartel investigations. These draft guidelines were published by the NDRC in the first half of 2016 to solicit public comments, and the final versions are expected to be issued by the AMC.
Types of cartel agreement
The AML explicitly prohibits the following monopoly agreement between competing business operators in article 13 of the AML:
- fixing or altering the prices of commodities;
- restricting the production output or sales volume of commodities;
- dividing sales markets or procurement markets of raw materials;
- restricting the procurement of new technologies or new equipment, or restricting the development of new technologies or new products;
- jointly boycotting transactions; or
- other monopoly agreements as determined by the AML enforcement agency of the State Council.
Monopoly agreements are defined under the AML as agreements, decisions or other concerted practices that eliminate or restrict competition. Horizontal monopoly agreements are strictly prohibited, unless the parties can prove that the relevant agreement falls within the exemption stipulated under article 15 of the AML.
Pursuant to article 15 of the AML, the prohibition against cartel agreements will not apply where a business operator is able to prove that the agreement was reached for any of the following purposes:
- for the purpose of improving technologies, researching, and developing new products;
- for the purpose of upgrading product quality, reducing costs, improving efficiency, the business operators unify product specifications or standards, or carry out specialisation of work;
- for the purpose of enhancing operational efficiency and reinforcing the competitiveness of small and medium-sized business operators;
- for the purpose of realising public interests such as conserving energy, protecting the environment and providing disaster relief, etc;
- for the purpose of mitigating the severe decrease of sales volume or obviously excessive production during economic recessions;
- for the purpose of protecting the justifiable interests of foreign trade or foreign economic cooperation; or
- other circumstances prescribed by the law or the State Council.
To apply the first five exemption categories, a business operator must also prove that such an agreement shall not substantially restrict competition in the relevant market and the consumers are able to share the benefits from the agreement.
The Draft Exemption Guidelines further illustrates factors that will be taken in determining whether the agreement belongs to the circumstances listed in article 15 of the AML that can be exempted, whether the agreement substantially restricts the competition in relevant market, and whether the consumers are able to share the interests derived from the agreement as follows:
- Major factors to decide whether the agreement belongs to the circumstances listed in article 15 of the AML including how and to what effect that the agreement could fulfil the circumstances listed in item (a) to (f) of article 15 of the AML, the causal relationship between the agreement and the fulfillment of the circumstances, and the significance of the agreement for fulfilling the circumstances, etc; in addition, in order to prove that the agreement falls within the exemption set out in item (g) of article 15, the business operator shall also submit the relevant laws and regulations of the State Council and prove that the agreement falls within the circumstance provided for therein.
- When reviewing whether an agreement will substantially restrict the competition, the AML enforcement agency shall mainly consider the following factors, including definition of relevant market involved in the agreement, market shares of the parties to the agreement and of the major competitors and the competition status of the relevant market, capability of the parties to the agreement in controlling sales market or raw material procurement market, financial and technical strength of the parties, the degree of dependence of other business operators on the parties to the agreements in the transactions, the degree of difficulty of other business operators entering into the relevant market, whether there are any potential competitors in the market, and other factors that can prove whether the agreement will substantially exclude or restrict competition.
- Factors determining whether consumers are able to share the interests derived from the agreement include whether the agreement can bring product or service innovation, an increase in variety or output, quality or safety improvement, price reduction, enhancement of convenience of consumption, and other circumstances in which consumers are able to share the interests derived from the agreement.
In addition, the Draft Exemption Guidelines also provide that business operators and trade associations shall self-assess their conduct to determine whether the concluded or proposed agreements fall within the circumstances that can be exempted according to article 15 of the AML, and they shall have the discretion in deciding whether to file an exemption application or to conduct consultation with the AML enforcement agencies. Normally, the AML enforcement agencies will not engage in communication with business operators or trade associations in this regard.
Procedure-wise, the Draft Exemption Guidelines provide detailed guidance regarding how to file an exemption application, as follows:
- Timing: a business operator or trade association has the right to apply for exemption after the AML enforcement agency has initiated investigation but before the AML enforcement agency issues an advance notice of administrative penalty decision or within the period of statement or defence set out in the advance notice of administrative penalty decision.
- Application materials: an applicant shall submit a written application for exemption, which contains the following information, including name, domicile, business scope and registration certificates of all the applicants, the agreement concerned under the exemption application and relevant documents, reasons and evidence for the exemption application, business operators affected by the agreement and the contact information thereof, and whether an exemption application has been filed with any other relevant authorities of other countries or regions and the relevant authorities' opinions in this regard, etc.
- Opinion solicitation: where an AML enforcement agency intends to grant exemption, it generally will seek opinions from relevant business operators and representatives of consumers. The authorities may also solicit opinions from the relevant industrial authorities, trade association, social organisation and relevant experts if necessary. In addition, where public interests are involved, the AML enforcement agencies may also publish the proposed opinions regarding the exemption for, normally, 20 working days and seek for public opinions.
- Exemption decision: unless any state secret is involved, the AML enforcement agency will make the exemption decision public within 20 working days of the decision being made. Before the publication of the exemption decision, the applicants may have their business secrets kept confidential.
With respect to the consultation with the AML enforcement agencies regarding exemptions, the Draft Exemption Guidelines provide that the AML enforcement agencies generally do not accept consultation in this regard. Only when an agreement to be reached by the business operators or trade associations may affect the market competition in many countries or regions including China, and the relevant business operators or trade association intend to apply for exemption in other countries or regions, or when a national trade association, on behalf of the entire industry, seeks the AML enforcement agencies' opinions as to certain important or widely adopted agreements, the exemption consultation may be accepted by the AML enforcement agencies. The exemption consultation should be applied before the agreement is reached. The applicant will generally be notified about the competition concerns, as well as suggestions on how to address competition concerns. Where an agreement clearly meets or fails to meet exemption conditions, the applicant may be notified of being granted with exemption or not being granted with exemption accordingly; the applicant could also be notified that it is hard to make a judgement if the applicant fails to submit certain materials in accordance with the guidance provided in Draft Exemption Guidelines. However, it should also be noted that the opinions given by the AML enforcement agencies only indicate the agencies' competition concerns and enforcement preference based on materials available and they would not prevent the AML enforcement agencies from launching antitrust investigation into the agreement reached thereafter.
In addition to the aforementioned cross-industry exemptions, article 56 of the AML provides an exemption for the agricultural industry that the AML will not be applied to cooperative or collaborative actions between agricultural producers and rural economic organisations in business activities such as the manufacturing, processing, sale, transportation and storage of agricultural products. Apart from that, there are no other industry-specific exemptions available thus far.
Competitively sensitive information exchange
As mentioned in the section on types of cartel agreement, under the AML, the term ‘monopoly agreement' is defined as an agreement, decision or other concerted practice that eliminates or restricts competition. Therefore, pure exchange of sensitive information without entering into monopoly agreement itself would not be considered as a violation. Nevertheless, concerted practice can be acts in concert without explicit conclusion of written or oral agreements, and can be presumed upon consistent pattern of actions in the absence of reasonable explanations and with communication of intentions or exchange of information. The exchange of certain competitively sensitive information, such as pricing strategies, cost information or specific customer information between competitors may be considered a way to facilitate concerted practice. It is clearly indicated in both the NDRC Rules and the SAIC Provisions that when determining whether there exists any concerted practice prohibited by article 13 of the AML, the enforcement authorities will look into factors including communications of intention between the competitors and acts in concerts by the competitors. Therefore, even though exchange of sensitive information is not a per se violation, business operators should bear the above risk in mind and avoid engaging in such behaviour.
For example, in the Estazolam case, although Changzhou Siyao Pharmaceuticals Co, Ltd (Changzhou Siyao) did not expressly agreed to the proposal of joint boycott and price increase, the NDRC concluded that Changzhou Siyao had participated in the cartel and implemented the cartel agreement with the other two pharmaceutical companies. The NDRC's decision is based on the following reasoning: (i) the Estazolam market is a typical oligopoly market; (ii) Changzhou Siyao attended the meeting with the other two companies, and thus was aware of their intention of joint boycott and price increase; (iii) Changzhou Siyao did not expressly objected to the proposal or reported the illegal conduct of the two companies to antitrust regulators; (iv) Changzhou Siyao stopped supply and increased price after the meeting, which is consistent with the behaviours of the other two companies. Therefore, the NDRC decided that Changzhou Siyao's activities constituted concerted practice prohibited by the AML. This is the first case where the NDRC found and penalised a concerted practice.
Cartel investigations in China are administrative processes and as mentioned before, are carried out by the NDRC and the SAIC.
The NDRC and the SAIC can handle cases by themselves or by delegating their authority to their provincial counterparts. The NDRC has generally delegated its authority to the provincial price authorities, while the SAIC's authority is delegated to provincial administrations for industry and commerce (AICs) on a case-by-case basis.
Pursuant to article 2 of the AML, the AML will apply to monopoly conduct occurring overseas under the circumstances the conduct has the effect of restricting or eliminating competition in the Chinese market. Due to the extraterritorial application of the AML, the NDRC and the SAIC have authority to investigate cartel activities occurring in another country if the cartel has affected the domestic Chinese market. Therefore, even if a cartel agreement is concluded overseas, and the companies that enter into the cartel agreement have no physical presence in China or any substantial contact with China, the NDRC and the SAIC still have the power to investigate the cartel and the companies as long as the cartel has anticompetitive effects on the Chinese market.
For example, in the Japanese Auto Parts case (for a detailed introduction to the case, please refer to the section regarding cartel enforcement), the NDRC found that the cartel involved several operators outside the territory of China. However, the products were sold to Chinese car makers with prices agreed between cartelists, thus having an adverse impact on the Chinese market. Therefore, the NDRC exerted its extraterritorial jurisdiction in order to investigate those cartelists located outside of China, and penalised them for violating article 13(1) of the AML.
The investigation process: initiations, measures taken during investigation, penalties, suspension of the investigation and leniency programme
Under article 38 of the AML, the AML enforcement agencies may initiate an investigation based on its own initiative or based on the complaints from third parties, including business operators, industrial associations and other governmental agencies. The AML enforcement agencies are required to keep the identity of the complainant confidential.
The AML also provides a leniency programme and the AML enforcement agencies regard it as a useful tool in identifying cartels. Accordingly, in practice, many cartel investigations are triggered by leniency applications filed by whistleblowers. See the section regarding leniency applications for a detailed introduction of the leniency programme.
Measures that may be taken by the antimonopoly enforcement authorities during investigations
Pursuant to article 39 of the AML, the AML enforcement agencies can adopt the following measures to investigate suspected cartel agreements or practices reached among competitors:
- entering the business premises of the business operators who are under investigation or any other relevant places to conduct inspections;
- making enquiries to the business operators, interested parties, or other relevant entities or individuals, and requesting them to provide relevant explanations;
- inspecting and duplicating the relevant business documents, agreements, accounting books, business correspondences, electronic data, files, or other materials and documentations of the business operators, interested parties, or other relevant entities or individuals;
- seizing and detaining the relevant evidence; and
- enquiring into the bank account of the business operator.
In practice, very often the AML enforcement agencies will interview the employees of the target operator. The antimonopoly enforcement authorities will normally create a written transcript of the interview and ask the interviewee to sign on the transcript. The interviewee is entitled to verify the content of the transcript before signing and to request modifications if the transcript is not an accurate record of what he or she says. Companies and any individuals subject to an investigation are required to cooperate according to the AML. If business operators refuse to cooperate or even obstruct the investigation, such as by refusing to provide the relevant materials or information to the AML enforcement agencies, providing false materials and information, concealing, destroying or removing evidence, they may be subject to the penalties provided under article 52 of the AML.
Article 52 of the AML provides that an order may be issued by the AML enforcement agencies to correct the behaviour; and the AML enforcement agencies may also impose a fine of up to 20,000 yuan on individuals and up to 200,000 on entities, and where the case is serious, a fine of between 20,000 and 100,000 yuan may be imposed on individuals, and a fine of between 200,000 and 1 million yuan may be imposed on entities. Where the case constitutes a criminal offence, criminal liability shall be pursued in accordance with the law.
There is no strict timetable to be followed by the NDRC or the SAIC in investigating cartel cases. According to the cases published by the authorities, depending on the specific circumstances of the cases, some cartel investigations are closed within a few months (such as the Japanese Auto Parts case), and some may take one or two years.
Pursuant to article 46 of the AML, where a business operator has entered into and implemented a cartel agreement, the AML enforcement agencies will order the business operator to stop the illegal conduct, confiscate the illegal gains and further impose a fine ranging from 1 to 10 per cent of the sales value generated in the preceding year. In practice, confiscation of illegal gains has rarely been implemented by the NDRC. The agency normally only imposes the other two forms of penalties (ie, imposing a certain amount of fines and ordering the business operator to stop the illegal conduct).
Article 46 further provides that where a monopoly agreement has been formed but has not been implemented, a fine of up to 500,000 yuan may be imposed.
In addition to the above administrative sanctions, pursuant to article 50 of the AML, cartelists bear civil liabilities if the cartel arrangement causes losses to others. The AML does not provide any criminal liabilities arising from cartel activities either for business entities or individual employees.
Factors considered in determining the fine
Pursuant to article 49 of the AML, when determining fines, the antimonopoly enforcement authorities must consider factors such as the nature, seriousness and duration of the illegal acts. Further, article 10 of the SAIC Provisions also stipulate that when determining the specific amount of the fine, the SAIC must consider factors such as the nature, details and seriousness and duration of the illegal acts; if a business operator voluntarily ceases any acts amounting to monopoly agreements, the SAIC may, at its discretion, reduce the penalty for such business operators, or exempt them from the penalty.
In addition, the NDRC Penalty Rules, which took effect as of 1 July 2014, provide more detailed guidance on the determination of fines. The NDRC Penalty Rules explicitly stipulate five kinds of decision that could be made by the NDRC and its provincial counterparts: no punishment, mitigated punishment, lighter punishment, normal punishment and heavier punishment. Similar to the relevant rules set forth in the SAIC Provision, when considering the penalties to be imposed, the NDRC and its provincial counterparts would take into account factors such as the seriousness and duration of the illegal acts, whether the operator ceases the monopoly agreement on its own initiative, whether the operator proactively eliminated or mitigated the harmful effects of the illegal acts, whether the operator cooperates with the authorities, the role of the operator in the monopoly agreement, etc.
Draft Fines Guidelines, published on 17 June 2016, further provide more detailed guidance on the calculation of illegal gains and fines to be imposed on business operators that violate the AML. Particularly, the Draft Fines Guidelines firstly introduced a three-step fine calculation method, which consists of:
- step one - determination of sales value of the business operator in the preceding year;
- step two - determination of the basic percentage for calculating the basic amount of fines by considering the nature and duration of the illegal conduct; and
- step three - making adjustments to the basic percentage for calculating the basic amount of fines by considering other factors in relation to heavier, lighter or mitigated punishment and in accordance with the seriousness of the illegal conducts, thereby determining the final percentage for calculating the fines and calculating the final amount of fines to be imposed.
Specifically, with respect to step one, the Draft Fines Guidelines provide that ‘the preceding year' refers to the fiscal year (the same as the calendar year in China) prior to the initiation of the relevant investigation; where the monopolistic conducts have ceased before the AML enforcement agency initiates an investigation, the ‘preceding year' refers to the fiscal year prior to the cessation of the monopolistic conduct. In addition, the Draft Fines Guidelines further provide that ‘sales value of the business operator' refers to the business operator's sales income generated from selling the products concerned in the geographic area where the business operator implements monopolistic conducts; however, under certain circumstances, if the sales value calculated based on the previous method cannot reflect the degree of damage caused to market competition and consumer welfare, the principle of proportionality and the deterrent effects of the AML enforcement, the AML enforcement agency may take the sales income that does not exceed the business operator's total sales as the basis for calculating fines.
In terms of step two, the basic percentage for calculating the basic amount of fines is decided by different categories of cartel violations and is further adjusted according to the duration of the illegal conduct. Generally speaking, the Draft Fines Guidelines provide a specific percentage for each kind of AML violations - for cartel violations regarding fixing or changing commodities' prices, restricting output or sales volume of commodities, and allocating sales market or raw material procurement market that are prohibited under article 13(1), (2) and (3) of the AML, the percentage would be 3 per cent, since they are normally aimed at eliminating or restricting competition and are regarded as most harmful to the competition; for cartel violation regarding restricting the purchase of new technologies or new equipment or restricting the development of new technologies or new products, jointly boycotting and other monopoly agreements as determined by the AML enforcement agencies that are prohibited under article 13(4), (5) and (6) of the AML, the basic percentage would be 2 per cent. Further, if the illegal conduct lasts for more than one year, then the above-mentioned percentage will need to be adjusted and increased by 1 per cent for each additional year; if the additional period is less than six months, the percentage shall be increased by 0.5 per cent; if the additional period is more than six months but less than one year, the percentage shall be increased by 1 per cent.
At last, the basic percentage will be further adjusted according to other factors in relation to heavier, lighter or mitigated punishment and in accordance with the seriousness of the illegal conducts. The Draft Fines Guidelines clearly list several factors that will be considered to impose a heavier (ie, increasing the basic percentage by 0.5 per cent to 1 per cent), lighter or mitigated (ie, decreasing the basic percentage by 0.5 to 1 per cent) punishment. For example, if the business operator was acting as the main role or leading role in the monopoly conduct, or coercing or inveigling other business operators to implement the monopoly conducts, or hampering other business operators' cessation of those monopoly conducts, a heavier punishment will be considered to be imposed on such business operator by increasing the basic percentage by 1 per cent; if the business operator was being coerced into implementing the monopoly conducts, or is cooperative with the investigation with meritorious performance, or takes proactive measures to eliminate the consequence of infringements, a lighter or mitigated punishment will be considered to be imposed on such business operator by decreasing the basic percentage by 1 per cent. Thereafter, the AML enforcement agencies will adjust the percentage within the statutory scope, which is more than 1 per cent and less than 10 per cent pursuant to article 46 of the AML, in accordance with the degree of infringement of the monopoly conduct and determine the final percentage for calculating the fines; particularly, in case of a serious infringement, the final percentage shall be no less than 6 per cent, whereas in case of a light infringement, the final percentage shall be no more than 3 per cent. Nevertheless, if the infringement is not of a serious nature and lasts for less than one year, and does not involve any circumstance for heavier punishment but involves two or more circumstances for lighter punishment, the AML enforcement agencies could mitigate the administrative penalty in accordance with the Administrative Penalty Law.
Article 46 of the AML provides general rules for a leniency programme, indicating that where an operator has voluntarily reported the relevant facts on entering into a monopoly agreement to the AML enforcement agencies and provided important evidence, the AML enforcement agencies may, at its discretion, reduce or waive the sanction for such operator.
The NDRC Procedural Provisions and the SAIC Provisions each set out the details of their own leniency programme, which show some subtle differences of the application of leniency programme by these two AML enforcement agencies, such as the sliding scale of fine reductions and treatments to the organiser of a cartel.
Nevertheless, the Draft Leniency Guidelines is expected to unify the differences between the SAIC's leniency programme and the NDRC's leniency programme. As provided in the Draft Leniency Guidelines, the first leniency applicant will receive no less than a 80 per cent fine reduction or full immunity, the second applicant will receive a 30 to 50 per cent fine reduction, and the subsequent applicants will receive no more than a 30 per cent fine reduction. Also, according to the Draft Leniency Guidelines, the AML enforcement agencies may consider exempting or mitigating the confiscation of illegal gains to encourage business operators to voluntarily report monopoly agreements and provide important evidence. However, a business operator that coerces or organises other business operators to participate in the conclusion and implementation of the monopoly agreements will generally not be granted full immunity, but the operator can receive certain reduction of penalties under the Draft Leniency Guidelines.
Regarding the form of application, according to the AML, the business operator should submit a report stating the relevant facts of the monopoly agreement, and provide important evidence to support its statement. Although there is no standard application form for the application, the Draft Leniency Guidelines provide for the following elements to be included in the report:
- participants to the monopoly agreement and their basic information, including the names, addresses, contact information and representatives;
- details of the communication under the monopoly agreement, including the time, place, content of communication, and participants;
- the products or services, prices and quantity that are involved in the monopoly agreement;
- the regions and market scale affected by the monopoly agreement;
- the duration of the monopoly agreement; and
- any explanation of the evidence submitted by the business operator.
As for the important evidence, the Draft Leniency Guidelines require that it should be sufficient to enable the AML enforcement agency to initiate an investigation if the AML enforcement agency has not yet obtained clues or evidence of the case. If the AML enforcement agency has started the investigation, the important evidence must refer to the evidence that can add significant value to the ultimate determination of the monopoly agreement, including:
- evidence with greater probative force or supplementary probative value regarding the conclusion and implementation of the monopoly agreement;
- evidence with supplementary probative force concerning the contents of the monopoly agreement, the time of reaching and implementing of the monopoly agreement, products or services involved, and relevant participants; and
- other evidence that can enhance the probative force of the evidence regarding the monopoly agreement.
There is currently no marker system for leniency application under the AML or under the relevant implementation rules of the NDRC and the SAIC. The Draft Leniency Guidelines, if adopted, will for the first time introduce the marker system into the Chinese leniency programme. According to the Draft Leniency Guidelines, if the business operator cannot provide all materials and information at the time it files for leniency, the operator can first submit a preliminary report to mark its ranking with the AML enforcement agency. In the preliminary report, the applicant must explicitly admit its involvement in the monopoly agreement and give a brief description of the conclusion and implementation of the monopoly agreement, including information as to the relevant participants, the products and services involved and time of conclusion and implementation. The AML enforcement agency will then issue a written opinion, requesting the business operator to supplement relevant materials within a limited period of time (no more than 30 days or under special circumstances, 60 days). If the business operator can supplement the requested materials within the time limit, the AML enforcement agency will regard the time when the business operator submits the preliminary report as the time when the business operator files the leniency application.
Moreover, to apply for a leniency programme, the Draft Leniency Guidelines requires that, in addition to voluntarily reporting the facts of a monopoly agreement and providing important evidence, the applicants should also fulfil the following obligations:
- timely stop the suspected illegal conducts;
- cooperate with the AML enforcement agencies in the investigation in a prompt, continuous, comprehensive and faithful manner;
- properly keep and provide evidence and information, and not conceal, destroy, transfer evidence or submit false material and information;
- not disclose information about the leniency application without prior approval of the AML enforcement agencies; and
- not engage in any other conduct that may affect the enforcement of the AML.
Suspension of an investigation
The business operators under investigation may apply for suspension of an investigation by filing written applications for suspension and by making commitments to take specific measures to eliminate the anticompetitive effects during the limited period as approved by the AML enforcement agencies. The AML enforcement agencies will supervise the performance of the business operator and will have the right to resume the investigation if any of the following occurs:
- the operator fails to perform its commitments;
- there are significant changes to the facts on which the suspension decision was made; or
- the suspension decision was made on the basis of incomplete or inaccurate information submitted by the business operator.
Where the AML enforcement agencies consider that the business operator has fulfilled its commitments, the AML enforcement agencies may decide to terminate the investigation. By applying the suspension procedure, the antimonopoly enforcement authorities can decide to terminate the investigation without reaching an affirmative decision for the violation after accepting the commitments from the business operators.
The Draft Commitment Guidelines, which was released on 2 February 2016 to seek for public opinion, provides more detailed guidance on the procedure of applying for suspension of the investigation. Firstly, according to the Draft Commitment Guidelines, the commitment procedure will only be applicable to other monopolistic conducts than horizontal monopoly agreements on price fixing, on restricting production or sales quantity, or on allocation of sales market or raw material procurement market. The commitments can be made at any stage starting from the commencement of the investigation until the issuance of the advance notice of administrative penalty decision. However, if after investigation the AML enforcement agency holds that a suspected monopolistic conduct constitutes an AML violation, the agency will not accept any commitment made by the operator concerned.
When making commitments and applying for suspension of the investigation, the business operator must submit a written application with the following information:
- The suspected monopolistic conduct under the investigation and its possible impact.
- The specific measures in the commitment to be taken to eliminate the consequences of the conduct.
- The timeline and approach to fulfil the commitment.
- Other contents that need be covered by the commitment
Furthermore, the Draft Commitment Guidelines also confirm that the AML enforcement agencies' decision on suspension or termination of the investigation must not be interpreted as an affirmation on whether the business operator's conduct constitutes an antimonopoly violation and must not be taken as relevant evidence to affirm the violation before the people's court.
Since 2013, the NDRC and its local counterparts have initiated cartel investigations in a number of industries, including cargo, pharmaceuticals, LCD panel, gold jewellery, automobile, auto parts, car shipment and insurance, etc.
We hereby list several notable cases decided in 2014, 2015, 2016 and 2017 by the NDRC for your reference.
|Time||Target entity||Amount of penalty (RMB)||Illegal conduct|
Hangzhou Fuyang District Papermaking Organization
1 per cent of sales value of previous year
China Unicom Changchun Office and Changchun FAW Telecommunication Tech Company
5 per cent of sales value of previous year
Shanxi Automobile inspection organizations
3-8 per cent of sales value of previous year
Guizhou Automobile inspection organizations
1-6 per cent of sales value of previous year
Huazhong Pharmaceutic Company and other two companies
2.5-7 per cent of sales value of previous year
Boycotting and price fixing
Lianyungang Zhicheng Chemical and other five companies
1 per cent of sales value of previous year
31 automobile inspection organisations in Shanxi Province
3-8 per cent of sales value of previous year with one full immunity
Chongqing Qingyang and other four companies
4-8 per cent of sales value of previous year, mitigation of punishment to some extent
Price fixing and market allocation
NYK and other seven pure car carriers
4-10 per cent of sales value of previous year with one full immunity
Price fixing (bid rigging)
Wuwei Transport Group Auto Repair and other 21 auto repair companies
2 per cent of sales value of previous year
Zhejiang Insurance Trade Association and 23 insurance companies
500,000 yuan on Zhejiang Insurance Trade Association and 1 per cent of sales value of previous year on insurance companies
Three cement manufacturers
2 per cent of sales value of previous year
Three crystal shops in Sanya
2 per cent of sales value of previous year, with one full immunity
Lijiang Travel Association and participated in by eight travel agencies
5 per cent of sales values of previous year on the travel agencies and 500,000 yuan on the association
12 Japanese auto part manufacturers
4-8 per cent of sales value of the previous year with two full immunities
Details of three recent significant cases are as follows.
On 27 July 2016, the NDRC published its decisions to impose fines over three local pharmaceutical companies (ie, Huazhong Pharmaceutical Co, Ltd (Huazhong), Shandong Xinyi Pharmaceutical Co, Ltd (Shandong Xinyi), and Changzhou Siyao Pharmaceuticals Co, Ltd (Changzhou Siyao)), in a total amount of about 2.6 million yuan for entering into and implementing monopoly agreements in relation to estazolam active pharmaceutical ingredients (APIs) and tablets in violation of article 13 of the AML.
The NDRC's investigation revealed that the three companies had entered into and implemented the monopoly agreement to jointly boycott transactions in relation to estazolam APIs and to fix prices with respect to estazolam tablets. The meetings held by the three companies during September to October 2014 reached the following consensus: (i) each company should use estazolam APIs for the internal manufacture of estazolam tablets only, and stop any external sale of estazolam APIs to other manufacturers of estazolam tablets; and (ii) a tacit understanding had been reached that the three companies should act concertedly to raise the prices of estazolam tablets. Since December 2014, three companies gradually increased the prices of estazolam tablets by issuing a price adjustment notice. Particularly, Huazhong and Shandong Xinyi had communicated with each other through meetings, phone calls and text messages, etc.
Since Huazhong had played a leading role in the conclusion and implementation of the agreements, the company was fined 1,571,829 yuan (7 per cent of its revenue generated from estazolam tablet sales in 2015). Shandong Xinyi was fined 547,563 yuan (2.5 per cent of its estazolam tablet sales in 2015) due to its cooperation and meritorious contribution to the investigation, and Changzhou Siyao was fined 484,431 (3 per cent of its estazolam tablets in 2015) due to its light infringement and cooperation to the investigation.
On 2 February 2016, the NDRC published its decision to fine five domestic pharmaceutical companies, Chongqing Qingyang Pharmaceutical Co, Ltd (Chongqing Qingyang) and its affiliated sales company Chongqing Datong Pharmaceutical Co, Ltd (Chongqing Datong), Shanghai Xinyi United Medical Materials Co, Ltd (Shanghai Xinyi), Shimao Tianjie Pharmaceutical (Jiangsu) Co, Ltd (Shimao Tianjie) and its exclusive distributor Shangqiu Huajie Pharmaceutical Co, Ltd (Shangqiu Huajie), a total of almost 4 million yuan for reaching and implementing monopoly agreements on price fixing and allocation of sales market.
The NDRC found that in the period between April 2014 and September 2015, the five companies had held four meetings, and had reached and implemented monopoly agreements. The major content of the monopoly agreements include:
- increasing the price of allopurinol tablets together;
- allocating sales market of allopurinol tablets; and
- bidding in designated areas.
The agency concluded that the five companies' monopolistic conduct seriously eliminated or restricted competition within the market, given that they are the only three brands of allopurinol tablets which actual products in China market since 2014.
Therefore, Chongqing Qingyang, together with Chongqing Datong, has been fined 1,805,200 yuan in total (8 per cent of their annual sales in 2015). These two companies played a leading role in the conclusion and implementation of the monopoly agreements. The Shimao Tianjie has been imposed with a fine of 1,184,000 yuan (5 per cent of its annual sales in the previous year), as the company had actively cooperated with the agency in the investigations and submitted evidential materials. Also, smaller penalties of 495,600 and 510,600 yuan respectively were imposed on Shanghai Xinyi and Shangqiu Huajie (5 per cent of their annual sales in the previous year), since they had cooperated with the agency in the investigations and had provided true statements of facts.
The Pure Car Carriers cartel case
On 31 December 2015, the NDRC published its final decision on its website against eight pure car carriers for their participation in an international cartel, where the NDRC found that during 2008 to the September 2012, the pure car carriers had frequently conducted bilateral or multilateral communications via phone calls, meetings, social gathering and special visits and exchanged sensitive information, discussed prices, allocated customer and lanes, and accordingly reached and implemented agreements on prices quoted to certain roll-on/roll-off (RORO) cargo manufacturers regarding businesses in relation to China maritime transportation. The NDRC concluded that the above-mentioned behaviour of the eight pure car carriers constituted a violation of article 13(1) on monopoly agreements on price fixing and article 13(3) on allocation of sales market of the AML. Therefore, the NDRC imposed the penalties on the eight pure car carriers as follows:
- Applied leniency treatment to the first three applicants, who had seriously violated the law and should had been fined for 10 per cent of their turnover in relation to China in 2014. The first applicant received full immunity, the second applicant received a 60 per cent fine reduction and was given a fine of 4 per cent of the company's turnover in relation to China in 2014, the third applicant received a 30 per cent fine reduction and was given a fine of 7 per cent of the company's turnover in relation to China in 2014.
- For the companies that seriously violated the law but confessed to illegal behaviour and submitted evidence regarding the facts that were not found by the NDRC, they received a certain fine reduction due to their cooperation and received a fine of 9 per cent of the company turnover and 8 per cent of the company turnover respectively.
- For the companies that were only involved in relatively fewer infringements and played a minor role in the conclusion of the monopoly agreements, they were respectively fined 6, 5 and 4 per cent of the company turnover.
Enforcement developments of SAIC
On 29 July 2013, the SAIC held a press conference to announce that it had launched a publication platform for antitrust enforcement decisions. As of August 2016, final penalty decisions of all cases that had been closed (a total of 39) have been published on the SAIC's website, among which 20 cases are in relation to cartels. The cartels that have been investigated covered a wide range of industries, including insurance, construction materials, liquefied petroleum gas, tourisms, etc.
By the end of May 2017, a total of 26 cartel cases were disclosed on the SAIC's publication platform. We hereby list several notable cases for your reference.
|Decision||Target entity||Amount of penalty (yuan)||Illegal conduct|
Five Fireworks companies in Gushi County
1-2 per cent of sales value of previous year
Three code machine companies in Anhui
8 per cent of sales value of previous year
Hubei Insurance Association
Shandong Tianyuantongtai Accounting Firm (Linxi) and other companies
1-3 per cent of sales value of previous year
China Life Insurance and other insurance companies
3-5 per cent of sales value of previous year
Yongzhou Aodu Concrete and other six concrete companies
30,000 yuan on each six companies and one with immunity
Market allocation and agreeing on sales quota
Panyu Animation Youyi Industry Association
China Pacific Insurance (Hubei) and other 11 insurance companies
2-6 per cent of sales value of previous year
Mayang Brick Factory
205,000 yuan in total
Allocating sales market and price fixing
Shangyu Concrete Association and eight other concrete companies in Shangyu district of Shaoxing, Zhejiang
1,720,000 yuan in total
Allocating sales market
Four quarry operators in Wuxi in Chongqing
400,000 yuan in total
Allocating sales market
Six firework wholesale companies in Chifeng in Inner Mongolia
583,700 yuan in total
Allocating sales market
Brick and Tile Association of Yi Bin city of Sichuan and other companies
1,060,000 yuan in total
Allocating production and sales quantities organised by industry association