November 02, 2007

China's New Anti-Monopoly Law

After 14 years of preparation and debate, China recently passed the Anti-Monopoly Law, which will come into effect August 1, 2008. Below are key components of the new Anti-Monopoly Law:

1. Prohibition of Monopolistic Conduct
Like anti-trust laws in many jurisdictions, the Anti-Monopoly Law prohibits various forms of monopolistic activities already illegal in most jurisdictions, including monopoly agreements, abuse of market power, and concentration of market share that eliminates or restricts competition. The prohibition against monopoly agreements also includes prohibition against agreements to fix resale price or specify minimum resale price of goods sold to third parties. Abusive conduct by business operators that hold a dominant position in the market, such as tying, predatory pricing, and price discrimination, are also prohibited.

A business operator having a "dominant market position" is defined as a business operator who is able to control the price or quantity of products or other transaction terms in the relevant market, or able to prevent or affect the entry of other business operators into the relevant market. A business is presumed to hold a dominant market position if a single business operator holds half, two business operators jointly hold two-thirds, or three business operators jointly hold three-fourths of the market share in the relevant market. Thus, transnational companies holding a significant share of the market in China should review these provisions carefully before they enter into commercial contracts under Chinese law.

2. Concentration of Business Operators
The Anti-Monopoly Law imposes a filing requirement on a concentration transaction (i.e., merger, acquisition, or any contractual arrangement between two business operators where a single business operator obtains control or has the ability to exercise decisive influence over the other operator) if certain thresholds to be established by the State Council are met. China established an anti-trust filing regime for cross-border merger and acquisition transactions in 2003. These regulations were revised and refined in 2006. It remains to be seen whether the thresholds to be established by the State Council will depart significantly from the filing requirements under the current regime for cross-border mergers and acquisitions or whether the anti-monopoly review regime under the new law will replace the current regime. In addition, certain mergers and acquisitions of domestic entities by foreign investors in sensitive industries are subject to national security review. It is not yet clear whether such review will be subject to a procedure different from that of the anti-monopoly review.

3. Enforcement
The Anti-Monopoly Law provides that the Anti-Monopoly Commission (the "Commission") be established under the State Council. The Commission is to be responsible for formulating anti-monopoly policy, conduct market investigations, issue anti-monopoly guidelines and coordinate anti-monopoly administrative enforcement. The Anti-Monopoly Law also names the State Council Anti-Monopoly Law Enforcement Agency as the agency responsible for the enforcement of the Anti-Monopoly Law. Currently, various government ministries and agencies have asserted their authority to regulate anti-competition conduct. Since 2003, the Ministry of Commerce has exercised more and more of its power to conduct anti-trust reviews of certain cross-border merger and acquisition transactions. The process continues to evolve and strengthen as more ministries and agencies begin to assert their authority to regulate anti-competition conduct in China. In March 2007, the Ministry of Commerce issued guidelines on anti-monopoly filings that created more detailed procedures for review of such filings. How effective the new law will be when implemented remains to be seen.

Further details are expected to follow in the forthcoming implementation of regulations and guidelines by the State Council and the new Anti-Monopoly Enforcement Agency.

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