China Adopts a Comprehensive Competition Law After a 13-Year Journey

(a) The prohibition of anti-competitive monopoly agreements (e.g., agreements among competitors to fix the price, restrict the output or allocate the market);

(b) The prohibition of the abuse of a dominant position (e.g. exclusive dealing, tying or price discrimination by a dominant firm so as to eliminate or restrict competition); and

(c) Merger control (i.e., mergers or acquisitions which exceed certain thresholds will have to be filed with the Chinese antitrust agency for approval).

This is consistent with the structure adopted under other more mature competition law regimes in other jurisdictions. In addition, the AML also covers a fourth area, the prohibition of administrative monopolies, which addresses the anti-competitive effects of misuse of government power.

Overall, the AML is generally in line with international norms and this reflects the extensive consultation with leading jurisdictions such as the European Union and the U.S., as well as international bodies. However, some of its provisions have arguably distinctive "Chinese characteristics". The AML contains a provision emphasizing that its implementation shall be in keeping with a "market economy with socialist characteristics," with the purpose of "enhancing and improving the government's macro economic control". This emphasis on state macro economic control conflicts with the basic assumption under which any effective competition regime should operate, namely, a free market economy. It will be interesting to see how provisions like this will manifest themselves in the implementation of the AML.

Given the continued importance of China as an emerging market, all foreign multinationals doing businesses in China will need to ensure their systems and processes adequately address the requirements of the new law. For many, this may mean examining current business practices and contractual arrangements which have a Chinese dimension.

In the area of merger control, for example, mergers and acquisitions in China will be subject to merger review under the AML once it comes into effect. Significantly, the AML specifically provides the potential for the relevant authority to block transactions on antitrust grounds, or impose restrictive conditions on the merging parties. While this is not necessarily going to slow down the pace of foreign mergers and acquisitions in China, it means that in practice (as is the case in other more mature jurisdictions), seeking counsel's view on the competition aspects of an M&A transaction at the earliest opportunity in the deal negotiation process will become critical, and can potentially impact upon and influence structuring decisions for the deal. In extreme cases, competition considerations could in fact impact upon the overall deal rationale.

The prohibition against abuse of dominance is an area that has received great attention, as the provision has been elevated to the general principles chapter of the text of the AML, which suggests added prominence to the prohibition. While it is not unlawful to hold a dominant position in a market, companies with significant market share in China would nevertheless be advised to pay close attention to their existing conduct (such as exclusive dealing or refusal to deal) in order to minimize antitrust risk. When a company does engage in such conduct for legitimate business reasons, business justifications should be well documented in advance in order to defend any antitrust challenges.

Foreign companies should also review their existing commercial agreements that have a Chinese dimension to minimise any antitrust exposure. Such enquiries could involve, for example, considering whether any of their distribution agreements contain provisions on fixing minimum resale price, or partitioning the market by territory or customer groups, among other considerations.

The adoption of the AML marks an important milestone for China in its journey towards a market economy and fair competition. Like many other Chinese laws, the AML sets out the general legal framework as well as the policy and principles behind the law. Implementation regulations are expected to be released soon, and these typically will provide more granular detail and guidance on implementation and enforcement of the law by the relevant competition authority.