• If you Fix Prices, Beware of the price law and the Anti Monology Law
  • December 14, 2010
  • Law Firm: King Wood - Beijing Office
  • On 10 December 2010, the State Council published and enacted a set of revised penalty regulations[1] (vis-à-vis the Price Law 1997). 

    Broadly, the penalties set out in these revised penalty regulations are more severe than the previous version. 

    Of note is the fact that there is a new Article 5 which outlines more severe and specific remedies in relation to breaches amounting to price-fixing. In addition, the new Article 19 introduces criminal sanctions for breaches of the Price Law 1997 which severely disrupt the market order in China.

     The revision of these penalty regulations have not been undertaken in isolation. These revisions have been undertaken as part of a larger State Council policy to curb inflation and to “stablise” commodity prices. 

    There are some similarities in relation to the objectives of the Price Law 1997 and the Anti-Monopoly Law (AML); but these objectives are not identical. The former aims to protect consumer interest and to “promote the sound development of a socialist market economy” by price regulation. The latter aims to protect consumer interest and promote fair competition by prohibiting anticompetitive conduct.

    The main provision within the Price Law 1997 which is often thought to “overlap” with the prohibitions within the AML is Article 14. This article outlines the boundaries and operation of Article 14 of the Price Law 1997 and outlines the similarities and differences between this provision and some of the provisions within the AML.

    Issue

    Price Law 1997

    Anti Monopoly Law

    Comments

    1. Who governs and enforces the law?

    National Development and Reform Commission (NDRC) (main enforcing authority) and government authorities in charge of price issues at county level or above.

    NDRC (for price related violations only) and government authorities in charge of price issues at the provincial level.

    Note that there is broader scope for more authorities to enforce the Price Law 1997 as opposed to the AML.

    2. What is the scope of the law?

    Price conduct that occurs within China only.

    Conduct which eliminates or restricts competition within China (i.e. including conduct within China and conduct which may have taken place outside of China).

    Note that the scope of the law is broader pursuant to the AML.

    3. What conduct is prohibited?

    Pursuant to Article 14(1), business operators are prohibited from colluding with others to manipulate market prices, thus harming the rights and interests of other business operators or consumers.

    Pursuant to Article 13, competing business operators are prohibited from making arrangements to collude on price. 

    Pursuant to Article 14, business operators are prohibited from making arrangements with “trading counterparts” (i.e. vertical business operators) from fixing resale prices.

    Note that the Price Law 1997 does not stipulate the types of relationships (e.g. horizontal or vertical) between business operators; whereas the AML does.

     

    Pursuant to Articles 14(2), (5) and (6), business operators are prohibited from “dumping” commodities; price discrimination and selling or purchasing commodities at artificially high or low levels.

    The AML contains similar prohibitions but these are only applicable to “dominant” business operators.

    Note there is no need to establish “dominance” pursuant to the Price Law 1997.

    4. What are the remedies imposed for breach?

    Range of remedies could be imposed, including: (a) injunctive orders; (b) illegal gains being confiscated; (c) fines not exceeding 5 times the illegal gains; (d) suspension of business license; (e) orders to temporarily suspend business; (f) criminal sanctions for breaches which severely disrupt market order in China.

    Range of remedies could be imposed, including: (a) injunctive orders; (b) illegal gains being confiscated; and (c) a fine of up to 10% the turnover of the business operator.

    Note that a fine of up to 10% of turnover gives the NDRC greater scope to impose higher fines pursuant to the AML.

    5. Is there a leniency regime?

    Not expressly within the Price Law 1997 or within its penalty regulations.

    Yes, Article 46 states that the authority may reduce or waive remedies at its discretion if business operators (who have breached the AML) have been cooperative.

    Nil.

    Concluding remarks

    As outlined above, there are some similarities between the prohibitions set out in Article 14 of the Price Law 1997 and the prohibitions set out pursuant to the AML. Some may argue that the wording of Article 14 of the Price Law 1997 is “looser” in scope and thus there may be less elements to prove in terms of establishing a contravention of Article 14, compared to establishing a contravention of the AML. 

    Recently, the NDRC has announced that it imposed fines on green bean distributors and a frozen food association for fixing prices (in breach of the Price Law 1997). In respect of the AML, the NDRC has announced that it has imposed remedies on a number of business operators in a spectrum of industries, including business operators in the rice noodle, explosives, tennis, insurance, internet café, tea and milk industries for price collusion.


    [1] In 1999, the State Council enacted penalty regulations (to accompany and expand on the penalty provisions within the Price Law 1997) entitled “Provisions on the Administrative Punishment of Price-related violations” (penalty regulations). These penalty regulations have been amended or updated twice thus far: once in 2006; once in 2008 and most recently on 10 December 2010.